Many people jump at the chance to invest when they hear about tax savings. But did you know there’s a way to get tax exemptions under section 80C without making any new investments? We’re talking about the National Savings Certificate (NSC).
Old investments, new gains
The NSC is a five-year investment plan, and the best part is that even past investments can help you claim tax exemptions each year. The interest you earn from NSC is treated as ‘accrued income’ annually, and for the first four years, this interest is automatically reinvested in the same scheme.
Why do you get tax benefits on NSC under 80C?
Sanjoli Maheshwari, Executive Director at Nangia Andersen India, explains, “The interest earned from NSC investments is considered as part of the investment itself. This applies only for the first four years of your NSC investment. Because of this, it qualifies for a tax deduction under section 80C, as long as your total exemption limit stays within ₹ 1.5 lakh.”
So, if you invested in NSC two years ago, you can still save on taxes this year by including the interest earned in your 80C claims.
Why isn’t the fifth-year interest eligible under 80C?
In the fifth year, which is the maturity year for NSC, the interest is paid directly to you, meaning it’s not considered reinvested. As a result, the interest from this final year doesn’t qualify for tax exemption under 80C, and you’ll need to pay tax on it according to your tax bracket.
However, you can choose to reinvest the interest earned in the fifth year into NSC or any other eligible scheme under section 80C. This way, you can still claim a tax exemption on that amount, allowing you to save on taxes even in the last year of the scheme with some smart planning.
Activate your old investments; the deadline is March
The last week of March is crucial for every taxpayer. It’s the perfect time to take full advantage of all available tax-saving options. If you invested in NSC years ago and have been overlooking the interest, now’s the time to act!