If you have idle cash at hard or are looking for investment options while availing tax benefits, you can opt for Fixed Deposits (FD) or National Savings Certificate (NSC).
NSC is a small savings instrument offered at post offices, that combine tax savings with assured returns. FD is a financial instrument, offered by banks and other financial institutes, providing investors higher interest rates than simple saving account, until the pre-decided, date to maturity.
- A fixed lock-in period. Currently NSCs have a lock-in period of 5 years while for FDs you can choose the tenure for which you wish to invest, ranging anywhere between 7 days to 20 years.
- Income earned is fixed, as the rate is interest remains constant throughout the tenure. This is true for both NSCs as well as FDs.
- Low risk, as NSCs and FDs both are highly secured investment providing fixed income, they involve almost non-existent risk.
- Investments made in both NSCs and FDs are eligible for tax exemption under section 80C, upto Rs.1.5 lakh.
- NSCs as well as FDs do not have any upper limit for investment, however, the tax exemption is capped at Rs. 1.5 lakh. Interest on both the schemes is chargeable on a yearly basis.
Now coming to the differences between NSCs and FDs -
- Government has fixed the NSC ROI at 6.80% per annum while banks and other financial institutions provide FD interest rates ranging between 6% to 8.2%.
- Senior citizens are provided slightly higher rate of interest in case of FDs; however, no such facility is extended in case of NSCs.
- Interest on NSCs is compounded on yearly basis and do not have the option of regular interest payout, whereas interest on FD can be compounded on a monthly, quarterly, half-yearly, as well as annual basis.
- NRIs cannot avail the benefits of NSCs, they can hold FD accounts in banks and other institutes.
- FD interest is subject to TDS, but TDS is not deducted from interest arising out of NSC, so it is the however the customer’s responsibility to pay the applicable tax.
- NSCs do not provide any premature withdrawal facility, other than reasons like - death of the holder, forfeiture of scheme by a gazetted government officer, scheme withdrawn by court order. But FDs offer premature closure in exchange for a nominal fee.
However, the most important differentiation between NSCs and FDs remains the fact that interest earned from NSCs are TDS free. Whereas interest acquire from FDs are subject to TDS if interest earned per annum exceeds Rs. 10,000 in case of banks and Rs. 5,000 in case of other financial institutions. But if the investor’s PAN card is not provided the TDS will be deducted at 20%. To claim refund of higher TDS deduction, you need to file income tax returns.
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