Choosing between National Savings Certificates (NSC) and 5-year tax-saving fixed deposits (FDs) for tax-saving purposes can be tricky, as both offer advantages and limitations.
Here are the key points to consider:
Important Note: While FD rates may appear higher initially, remember that:
* NSC interest is reinvested and qualifies for tax deduction under Section 80C, effectively increasing the overall return.
* FD interest is taxed as per your income slab, and TDS is deducted at 10% if it exceeds Rs. 40,000 (Rs. 50,000 for senior citizens) per year.
Also Read: Income tax saving options: NSC vs ELSS mutual funds. Which is better for taxpayers?
Consider that you invest Rs. 1 lakh in both NSC and FD (assuming 30% tax bracket):
Based on this calculation, NSC offers a slightly higher effective post-tax return in this scenario.
Also Read: National Savings Certificate: How to invest in NSC offline and online? Here's a step-by-step guide
However, it's crucial to consider other factors:
In conclusion, both NSC and tax-saving FDs can be valuable tools for tax-saving and wealth creation. The «better» option depends on your individual circumstances:
Also Read: SBI Fixed Deposits: Amrit Kalash and We-care available till 31st March 2024; should you invest?
Chakravarthy V is Co-founder and Executive Director at Prime Wealth Finserv Pvt. Ltd.
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