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Taxes on PPFs, NSC and post office schemes

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Taxes on PPFs, NSC and post office schemes
Post office schemes like National Savings Certificate (NSC), Public Provident Funds, Monthly Income at post post offices are perhaps the most popular form of investments, after bank fixed deposits. But, most of them do not offer tax rebates and hence one has to be prudent before investing in the same.
 

No tax on PPF

It's important to note that the interest earned on public provident fund is completely exempt from tax. Another benefit of the PPF is that the amount invested under PPF qualifies for tax exemption under section 80C of the Income Tax Act. This is why it is one of the most popular schemes. Interestingly, withdrawal from the PPF is permitted from 6th financial year.

No such benefits on NSC, MIPs etc

Post office offers various other monthly income plan and facility to invest through them in instruments like the National Savings Certificate. However, neither the NSC, not the monthly income plans qualify for a tax rebate.

This means that all the interest earned through these instruments will have to be added in the total income for the purpose of computing tax. However, it may be noted that deposits under the NSC qualify for a tax rebate under section 80 C of the Income Tax Act.

Presently, the 5 year National Savings Certificate attracts an interest rate of 8.5 per cent compounded six monthly but payable at maturity. INR. 100/- grows to INR a151.62 after 5 years.

On the other hand the 10 year NSC attracts an interest rate of 8.80 per cent compounded six monthly but payable at maturity. INR 100/- grows to INR 236.60 after 10 years.

GoodReturns.in

Read more about: taxes ppf nsc
Story first published: Thursday, June 20, 2013, 8:32 [IST]
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