PPF and NSC account holders? This trick will help you fix your maturity amount, save income tax too

PPF vs NSC: Those investors who have a low-risk appetite, generally invest in government-backed small savings schemes like Public Provident Fund (PPF), National Saving Certificates (NSC), Sukanya Samriddhi Scheme, ELSS, Senior Citizen Saving Scheme, etc, These small savings scheme give better returns than bank fixed deposit and generally they give higher returns than the rise in inflation. Most importantly, these small savings schemes are not subject to market risk. Their returns are announced by the central government on a quarterly basis. 

However, in the case of NSC investment, the interest rate given to the investor remains the same for the entire five years of its maturity period while in the case of other small savings schemes like PPF, Sukanya Samriddhi Scheme, Senior Citizen Saving Scheme, etc., the interest rate fluctuates in sync with the quarterly review of the interest rate. So, if someone has an investment in PPF and NSC or both, they can switch their five-year-old PPF account balance into the NSC. By this, the investor will be able to fix return and at the same time save income tax too on investment in the NSC under Section 80C of the Income Tax Act.

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Speaking on the strategy to fix the maturity amount, Balwant Jain, a Mumbai-based tax and investment expert said, "NSC has a tenure of five years. The present rate of interest on NSC is 7.9 per cent compounded half-yearly. The rate of interest on NSC is fixed at the time of the issue of the NSC, for the entire tenure of five years. So, your returns on these investments are not subject to any fluctuations in the interest rate in the future. In contrast, the interest on PPF account changes every quarter and that too on the whole of the balance in the PPF account." Jain went on to add that the most attractive feature which makes NSC superior is that investors can obtain loans from banks against the security of the NSC. This feature is not available in case of other similar products like tax-saving bank fixed deposits, Sukanya Samriddhi Scheme, Senior Citizen Saving Scheme, etc.

Speaking on the income tax benefit involved in this money swap from PPF to NSC, Jitendra Solanki, a SEBI registered tax and investment expert said, "The PPF maturity is 100 per cent income tax exempted irrespective of the income tax slabs, while investment in NSC is also exempted from the income tax under Section 80C of the Income Tax Act." So, this money swap will enable the investor to fix maturity amount and at the same time there will be no additional expense involved in it as PPF withdrawal after five years is allowed."

Currently, the interest rate on PPF and NSC is at 7.9 per cent but an investment in NSC will fetch a fixed 7.9 per cent annual return throughout the investment period while in PPF, it will depend upon the PPF interest rate announced quarterly by the central government. There is speculation that the central government may cut interest rates on small savings schemes after the RBI Governor Shaktikanta Das hinted about it after the recent RBI MPC meeting.