For investors primarily seeking tax benefits, the National Savings Certificate (NSC) stands out as a superior investment option compared to Kisan Vikas Patra (KVP).
Kisan Vikas Patra (KVP) and National Savings Certificate (NSC) are both popular small savings schemes in India, offering government-backed security and attractive returns. While both are designed to encourage long-term savings, a key differentiator emerges when considering their tax implications, making NSC the preferred choice for those looking to optimize their tax planning.
Understanding Kisan Vikas Patra (KVP)
Kisan Vikas Patra, often abbreviated as KVP, is a savings certificate scheme primarily offered by the Indian Postal Service. It's designed to help investors double their money over a fixed period, with the maturity period specified at the time of purchase. KVP is authorized by the Reserve Bank of India, ensuring its credibility and the safety of the invested capital.
Why National Savings Certificate (NSC) Outperforms KVP for Tax Benefits
The primary advantage of NSC over KVP lies in its tax benefits. While both are secure investment options, NSC offers tax deductions under Section 80C of the Income Tax Act, 1961, up to a certain limit. This crucial feature is absent in Kisan Vikas Patra.
Here's a detailed comparison:
| Feature | National Savings Certificate (NSC) | Kisan Vikas Patra (KVP) |
|---|---|---|
| Issuer | Government of India (falls under small savings tier) | Indian Postal Service |
| Regulatory Body | Government of India (Ministry of Finance) | Authorized by the Reserve Bank of India |
| Tax Benefits | Offers tax benefits under Section 80C of the Income Tax Act (principal amount eligible for deduction). Interest earned is taxable, but often reinvested interest is also eligible for 80C deduction. | Does not offer tax benefits on the invested amount. Interest earned is taxable as per the investor's tax slab. |
| Investment Objective | Savings with tax-saving focus | Long-term savings and capital doubling |
| Liquidity | Can be pledged as collateral for loans | Can be pledged as collateral for loans |
Practical Insights for Investors
- For Tax-Conscious Savers: If your primary goal is to save money while simultaneously reducing your taxable income, NSC is the unequivocally better choice. The Section 80C deduction can significantly lower your tax liability, making your overall investment more efficient. Many taxpayers utilize NSC as a part of their annual tax-saving portfolio, alongside other instruments like Public Provident Fund (PPF), Equity-Linked Savings Schemes (ELSS), and life insurance premiums.
- For Pure Growth/Doubling Capital: If tax benefits are not a concern, or if you have already exhausted your 80C limit, KVP can still be a viable option for straightforward capital growth. It offers a guaranteed return and a predictable doubling period, making it suitable for conservative investors.
- Government-Backed Security: Both schemes are backed by the Government of India, offering a high degree of safety and reliability for your investment. This makes them attractive options for risk-averse investors seeking guaranteed returns.
- Accessibility: Both NSC and KVP are easily accessible through post offices and various public sector banks across India, ensuring wide reach for investors in both urban and rural areas.
In conclusion, while both KVP and NSC are government-backed, secure savings instruments, NSC's distinct advantage in providing tax benefits under Section 80C makes it the superior choice for investors prioritizing tax-saving as part of their financial planning.
