National Savings Scheme 1987 (NSS) was mostly viewed upon as a tax-saving instrument. It combined growth in money (capital appreciation) with cuts in tax outgo, albeit at a lower rate. And if that was why you bought it many years ago, our expert Jaydeep Kashikar tells you why and how you should quit NSS for better opportunities today. 

Why should you quit?

Interest Rate on NSS: 7.50% per annum (with effect from 01/03/03). It is not tax-free.

Tax Deducted at Source (TDS): If you withdraw any amount from your account, 20% TDS will be deducted on principal and interest, both. If you don’t want TDS to be deducted, attach form 15H if withdrawal is above Rs 1 lakh and form 15I if withdrawal is below Rs 1 lakh.

Tax Liability: Tax is not payable on the interest earned every year, but the amount that you withdraw (principal + interest) has to be added to your income of that year for computing tax.

Normally what investors do: Most of the investors are not even aware about their NSS balances and the current interest rate on it. For over 15 years, the money is just lying and investors are ignorant about the interest rate that has fallen from 11.5% to 7.5% now. There is no regular income facility nor investors have withdrawn from it for years. It is like long term with low returns.

Investment Ideas: What you should do with the money?

• If you are above 65 years of age and your current annual income is for example Rs 75,000 (Income upto Rs 1,85,000 is exempt for senior citizens), you should withdraw Rs 1,10,000 from NSS. Your income for this year will be considered Rs 75,000 + Rs 1,10,000 i.e. Rs 1,85,000 and you have to pay no tax. The same Rs 1,10,000 which was earning 7.50% can now be invested in 9% Senior Citizen Savings Scheme. 
• If your income (irrespective of age and gender) is above the exempted limits and if you are not satisfied with just 7.50% p.a. returns. Then, withdraw Rs 1 lakh every year (if balance is more) and invest the same Rs 1 lakh u/s 80C. So your taxable income does not increase and you have to pay no additional tax.
• Invest the same Rs 1 lakh in National Savings Certificate and earn 8% p.a. + 80C deduction with 6 years lock-in.
• Or, invest upto Rs 70,000 in Public Provident Fund (PPF) and earn 8% tax-free returns.
• Or, invest in ELSS (Equity Linked Savings Schemes) of reputed mutual funds (MF) for just three years and you can expect higher returns. Equity MF returns over 10 years irrespective of all adversities have been in the range of 25-30% Compound Annual Growth Rate (CAGR). That is where your long-term money deserves to be invested in for wealth creation. 

To Summarise:
Withdraw from NSS and invest in better opportunities like 9% Senior Citizen Savings Scheme, PPF, NSC, ELSS as per your need, tax status and investment horizon. So, make a smart move and make your money work smarter for you.