Do you think ELSS is more profitable investment than NSC? Will it continue to be so after the DTC?
— Sankaran Shetty
You will get the benefit of a tax deduction under Section 80C of the Income Tax Act in both investments, Equity Linked Savings Schemes (ELSS) and National Savings Certificate (NSC).
If you are looking for safety and a guaranteed return, NSC scores higher in both cases. It offers a fixed return of 8 per cent per annum. However, in terms of returns over the long term, ELSS definitely scores over NSC.
ELSS is also a superior investment product in terms of holding period and tax benefit. The mandatory investment period for ELSS is just three years, as against six years for NSC. When you sell the units of your ELSS after three years, the long-term capital gains tax is zero. But the returns in NSC are added to your tax slab and taxed accordingly.
Come April 2012, when the Direct Tax Code (DTC) comes into effect, both ELSS and NSC will no longer qualify for a deduction under Section 80C. So what would? Public Provident Fund (PPF), Employees Provident Fund (EFF), Railway Provident Fund (RPF), New Pension Scheme (NPS) and premium towards term insurance.
This article was originally published on December 24, 2010.
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