108221In view of reduced inflation and expenses, will it be right to invest in IT stocks?

When it comes to one-time investments with assured returns for tax savings, we are all aware of the 5-year tax-saving FD offered by banks. However, there are two other investments with a lock-in period of 5 years that provide returns along with tax benefits: the 5-year time deposit (TD) offered by the Post Office and the National Savings Certificate (NSC). Let’s understand which one offers higher returns and greater tax savings.

Regarding taxes, both options are the same – if you choose the old tax regime, you can avail a deduction benefit under Section 80C for investments up to Rs. 1.5 lakh. The interest amount will be considered as part of the investor’s annual income, on which tax needs to be made based on the applicable tax slab. The minimum investment for both is Rs 1,000, and there is no maximum investment limit. A person can open multiple TD accounts, and similarly, one can purchase multiple NSCs.

Premature withdrawal

The TD account cannot be closed before six months. If closed before one year, it will earn interest at the savings account rate. After that, premature withdrawal attracts a 2% lower interest rate. In such a scenario, the tax benefit will also need to be returned. There is no provision for premature withdrawal of NSC. It can be prematurely closed in case of special circumstances like the death of the account holder. Both investments can be used as collateral to avail loans. TD and NSC can be pledged with banks or financial companies to obtain a loan.

Which one is better?

At first glance, both the 5-year FD and NSC are quite similar. NSC also works like a 5-year FD, with interest calculated based on annual compounding. After five years, the invested amount will be returned along with interest. In the case of FD, interest payment is received annually. Both investments provide a deduction benefit of up to Rs. 1.5 lakh under Section 80C for the investment amount. The interest earned in both cases will be considered as part of the investor’s annual income, on which tax payment needs to be made based on the applicable tax slab. Both TD and NSC can be used as collateral to avail loans from banks or financial companies.

In this way, both schemes are good for secure investments and assured returns. However, the advantage of NSC is that the interest is reinvested every year, and the tax deduction benefit can be availed on this amount as well. Now, if you need funds every year, then you should invest in FD, whereas if you want to receive a lump sum amount with interest at maturity, NSC is a better option.