If you are looking to invest for a financially secure future, you may find yourself choosing between National Savings Certificate and FD (Fixed Deposits). While it is important to compare the various features of both the plans before investing, it is also important to closely examine the tax rules that govern each option. This will help you make the most of tax breaks and increase your savings.
Here are the differences in tax breaks on NSCs and FDs according to Section 80C of the Income Tax Act.
- Re-investment taxation:
As per Section 80C, the income that you earn from both fixed deposits and NSCs is taxable under the ‘Income from other sources’ category. But, when it comes to NSCs, you can claim a deduction of interest earnings, since the interest is reinvested and not handed over to you. To get this benefit, be sure to declare the interest income as ‘Income from other sources’. You will get this benefit for 4 years when you invest in an NSC, as in the fifth year, the interest there is no re-investment. Instead, you receive the interest in the fifth year.
- TDS deductions:
TDS is not applicable on returns from a National Savings Certificate. However, on returns from bank FDs, tax is deducted at source, to the tune of 10%, in the event that your earnings cross Rs.10,000 in a single financial year. In the case that your bank doesn’t have your PAN details, TDS is applicable at 20%. In such a scenario, you will need to file a claim when filing your IT returns to get a refund. So, if you invest the same amount, in a 5-year bank FD and an NSC, you will get lesser returns on your FD because of the TDS that is applicable on it.
These are the two key ways in which NSCs and bank fixed deposits differ with regards to the tax break on interest by Section 80C. However, to get the most out of your investment, consider investing in a company Fixed Deposit, such as the one offered by Bajaj Finance.
For starters, this fixed deposit gives you a higher rate of interest on investment, as compared to the interest rate offered by a National Savings Certificate. Apart from tax benefits, you can also use this fixed deposit to get access to credit in the future. You can pledge it as collateral, and take a loan against it.
Armed with this information, make a decision on the basis of your need for flexibility, the rate of return, and of course, the tax benefits that you can make use of to maximize your earnings.