Savings

Which is better to save tax, returns

Postal Scheme National Savings Certificate or Tax Saver FD: Which is Better for Saving Tax, Returns

Many risk-averse investors put money in a 5-year fixed deposit to take advantage of the tax deduction under Section 80C of the 1961 Income Tax. has risen in recent months as the Reserve Bank of India (RBI) has raised repo rates by 140 since April this year. Most banks now offer a maximum FD rate of 6% and above and give a premium of 50 basis points to seniors.
But should we opt for these DF in order to save tax? If your answer is yes, you might want to take a look at the Post Office Department’s National Savings Certificate (NSC). The postal plan, which has a 5-year maturity, offers an interest rate of 6.8% compounded annually but payable at maturity. Deposits in the NSC are also eligible for deduction under Section 80C of the Income Tax Act, making the investment program a much better choice than a bank FD.

Besides the interest rate, tax-saving FDs and NSCs differ from each other on some key criteria. Here are the main differences you need to know before choosing one of these instruments for tax saving purposes.

– In tax-saving DFs, the investor has the option of receiving interest monthly or annually. But in NSC, regular interest payments are not made, but interest is paid when due. In NSC, you will receive the interest amount along with the principal amount after the five-year maturity period.

In NSC, interest accrued for the first four years is reinvested and eligible for a tax deduction under Section 80C for the first four years. Thus, the investor benefits from a deduction of 80 C on the amount of interest for four years. In the fifth year, the investor gets the interest earned during the five-year term.

-The maximum amount that can be invested in a financial year in both the NSC and the tax-saving FD is Rs 1.5 lakh.

The amount you invest in both NSC and FD Tax Saver is locked in for five years. Investors cannot prematurely withdraw the amount from any of the schemes. However, the biggest advantage of NSC is that it can be mortgaged to a bank to take out a loan in case of emergency. But tax-saving FD can’t be mortgaged for taking out a loan.

-Interest earned on FD and NSC tax savings is fully taxable. The interest amount is added to the investor’s taxable income and is taxed according to its slab. So look at the after-tax returns of both before investing. For individuals in the highest tax bracket, the net returns will be lower.