Getting the tax details right for your NSC

Arnav PandyaAnything that is out of sight is often forgotten by investors and the same is true with respect to the income that arises from various sources. Investors often forget to take them in their working and this leads to the painting of a wrong picture. Sometimes it can lead to them getting an income tax notice and this is something that they would want to avoid. One such instrument where this can happen is National Savings Certificate (NSC) and hence additional care needs to be taken in this regard. Here is a look at how the investor can manage the situation without much of a hassle on this front.NSCNational Savings Certificates are postal savings instruments that investors can buy. The main feature of these instruments is that the amount that is invested keeps earning and then the capital along with the interest is paid out at the time of maturity. There is no immediate payment of the interest earned during the entire life of the instrument so the investor does not witness any cash flow that comes in. This means that there is no bank entry that will be visible. There are two things that can happen with the investor in this case where the first is that they completely miss out on the interest calculation while looking at the computation of the total taxable income. The other situation is actually even worse because in a couple of years they might include the income but then miss out on the figures for the remaining period. Taxation of incomeThe income that is earned on the NSC is the interest that is got by the investor for the duration of the investment. Now the figure is compounded annually and this means that the amount will keep on increasing as the time period passes and hence this would need to be taken into consideration. At the same time there is no tax deduction at source so the investor will get the entire amount back at the time of maturity with the capital invested. This requires the investor to be vigilant in their efforts of ensuring that the amount is shown in the appropriate manner for taxation purposes. The easiest way to deal with the position is to ensure that every year the appropriate amount is shown as income, though there is another benefit that can be claimed with the income. The amount that is invested in NSC is eligible for Section 80C deduction so the amount of interest earned each year is considered as the amount that is reinvested and hence this figure could be claimed as a deduction under Section 80CRecord keepingThere are two stages to ensuring that there are no problems as far as the taxation of the income is concerned. The first involves the capture of the amount for taxation purposes so the start has to be done and the amount of income has to be included in the taxation working. The other aspect ensures continuation of the approach for the remaining period of the investment so that every year the details are mentioned and shown appropriately. This is important because missing out on any one year can lead to the entire income figure being wrong and this could lead to some amounts of tax being missed out for the payment which is something that has to be avoided. There is a need to ensure that the proper working is done because depending on when the instrument was bought and the rate that was applicable at that point of time the income that will arise each year will be different.