Even today, amidst the ups and downs of the stock market and the risky environment of mutual funds, a large middle class of the country trusts such schemes where their hard-earned money remains completely safe. If you also want fixed and guaranteed returns without any market risk, then the National Savings Certificate (NSC) scheme of the Indian Post Office proves to be a great option. The biggest feature of this government scheme is that it has the sovereign guarantee of the Central Government, due to which there is zero possibility of losing the principal amount. According to the current interest rates announced by the Finance Ministry, NSC is offering compound interest of 7.7 percent per annum, which is more attractive than the 5-year tax saver FD of many big commercial banks. For salaried employees and senior citizens, this scheme not only helps in creating a fixed fund for the future, but also becomes a strong means of saving income tax. On a lump sum investment of ₹ 1 lakh, you will get a total of ₹ 1,44,903 after 5 years. When an investor goes to the post office and deposits a lump sum amount of ₹ 1,00,000 in NSC, the first question that arises in his mind is that how much total profit will he get on the maturity period of 5 years. Its mathematics is very simple and transparent. Compound interest is calculated annually at an interest rate of 7.7% per annum. In the first year, interest of ₹ 7,700 is earned on the principal amount of ₹ 1,00,000 at the rate of 7.7%, taking your balance to ₹ 1,07,700 at the end of the year. In the second year, interest is calculated on this new balance, adding interest of ₹8,293, taking the total amount to ₹1,15,993. In this sequence, interest of ₹ 8,932 in the third year and ₹ 9,619 in the fourth year is credited to the account, due to which the amount becomes ₹ 1,34,544 by the end of the fourth year. After adding interest of ₹ 10,359 in the fifth and final year, the investor gets a total amount of ₹ 1,44,903 after completion of 5 years. That is, on an initial investment of ₹ 1 lakh, there is a direct net profit of ₹ 44,903 without any market risk. The magical cycle of annual compounding and year-on-year balance growth The real power of NSC lies in its annual compounding formula, where the interest earned every year gets added to the principal amount. This means that the investor gets the direct benefit of earning interest on his interest also. In normal savings accounts or simple interest schemes, interest is earned only on the principal amount every year, but in NSC the money gets reinvested automatically. This is quite easy to understand in the form of a table: Principal at the beginning of the first year is ₹1,00,000, interest is ₹7,700 and closing balance is ₹1,07,700; Second year starts with ₹1,07,700, interest ₹8,293 and closing balance ₹1,15,993; 3rd year starting balance ₹1,15,993, interest ₹8,932 and closing balance ₹1,24,925; Fourth year starting balance ₹1,24,925, interest ₹9,619 and closing balance ₹1,34,544; And with the addition of interest of ₹ 10,359 in the fifth year, the final maturity value becomes ₹ 1,44,903. Thus, due to compounding effect, the interest in the fifth year increases much more than that in the first year. The biggest secret of tax saving and reinvested interest under Section 80C, National Savings Certificate is not only a means of increasing capital, but it is also an effective weapon of tax planning. Taxpayers opting for the old tax regime get the benefit of tax deduction on amounts up to ₹ 1.5 lakh deposited in NSC under Section 80C of the Income Tax Act. Apart from this, the most important thing, which very few people know, is the double benefit available on its interest. In NSC, the interest earned during the first four years is not paid in cash but is automatically reinvested. As per Income Tax rules, this reinvested interest is considered as a new investment, hence the first 4 years of interest can also be claimed as tax exemption under the ₹1.5 lakh quota of Section 80C. Only the final interest received in the fifth year is not reinvested, hence it is considered taxable as per the tax slab of the investor. However, no TDS is deducted by the post office at the time of maturity, which gives great relief to investors in terms of liquidity. Rules for opening NSC account, required documents and conditions for premature withdrawal. Opening an NSC account in the post office is a very easy and accessible process. Any adult Indian citizen can purchase NSC in the form of single or joint account by visiting any nearest post office branch in the country. Apart from this, parents can also get this certificate in the name of their minor children. Investment in NSC can be started from a minimum of ₹1,000 and there is no limit on the maximum investment. To open an account, Aadhaar card, PAN card, two passport size photographs and proof of residential address are required as identity proof. This plan comes with a strict lock-in period of 5 years, which means that under normal circumstances it cannot be discontinued midway. Premature withdrawal is allowed only in case of untimely death of the account holder, court order or encashment of pledge by a Gazetted Officer. In case of financial need, loan can be taken at very cheap rates by mortgaging the NSC certificate in any bank as collateral.
