National Savings Certificate – NSC post office savings product is a popular investment scheme backed by the Government of India to encourage small savings among individuals. It is a safe, secure, and long-term investment scheme that guarantees a fixed rate of return over a specific time period. Moreover, National Savings Certificate offers tax benefits making it an ideal investment opportunity for risk-averse investors and for those who are looking to save on taxes.
What is NSC?
NSC- National Savings Certificate is a savings scheme that primarily encourages small to mid-income investors to invest along with availing tax benefits under Section 80C of the Income Tax Act. This scheme has a lock-in period of 5 years and has a risk-free return on investment. Currently, the NSC interest rate is 7% p.a. and it is revised by the government on a regular basis every year.
Let’s Summarize the NSC scheme in the below table:
|Minimum Investment||INR 1000|
|Lock-in Period||5 years|
|NSC Interest Rate||7% p.a.|
|Risk Profile||Low Risk|
|Tax Benefits||Tax deduction up to INR 1.5lakh u/s 80C|
What are the Features of NSC?
- Rate of Interest: Currently, the NSC Interest Rate offered is 7% p.a.
- Minimum and Maximum Investment: There is no maximum limit for investment. The minimum investment amount is INR. 1000 (or multiples of 100) and the investor can increase the amount when feasible.
- Access to the Certificate: One can purchase the Certificate from any Post Office upon successful completion of the KYC verification process. Further, the certificate is easily transferable from one Post Office to another or from one person to another without impacting the original certificate.
- Lock-in Period: The maturity period of the investment is 5 years.
- Power of Compounding: Interest earned on the investment gets compounded every year and is re-invested by default. Hence, the same is payable at the time of maturity.
- Nomination Facility: The investor can nominate any of the family members including minors so that the nominee can inherit the scheme in case of unfortunate events like the demise of the investor.
- TDS Applicability: During the NSC payouts, there will not be any tax deduction at the source. Albeit, the investor will have to pay the tax while filing his ITR.
- Loan Collateral: The savings certificates obtained can be kept as collateral security to get a loan from Banks or NBFCs against secured loans. As a procedure, the responsible postmaster has to transfer the certificate to the bank and put a transfer stamp on the certificate.
- Physical and E-Certificate: Effective from 1st April 2016, the National Savings certificate will only be available in electronic mode (e-mode). The existing physical certificates owned by you are to be discontinued
Types of NSC
NSC scheme offered two types of certificate i,e., the NSC VIII issue (5-year lock-in period) & the NSC IX issue (10-year lock-in period). However, w.e.f. from 20th December 2015, NSC IX was discontinued, and currently, only NSC VIII is available for investors to subscribe to.
Transfer of certificates from one person to another can be done only once from the date of issue to the date of maturity.
Who is Eligible to Invest in NSC?
The government launched National Saving Certificate as a saving scheme only for Residential Individuals. NRIs, HUFs, Trusts, or any other person other than individuals cannot invest in this scheme.
Hence, any individual looking for capital protection with a guaranteed return can choose to invest in NSC. They can simply visit any post office and purchase the scheme. However, it is essential to note that, unlike other fixed-income schemes like tax-saving Mutual Funds or Public Provident Funds, NSC does not earn inflation-beating returns.
What are the Tax Benefits of the NSC Scheme?
Moreover, the interest earned in the 1st 4 years is by default re-invested in the scheme. This means that every year you show the interest amount as income and then reinvest that income. Since it is deemed reinvested, it qualifies for a fresh deduction under Section 80C, thereby making it tax-free. At the maturity (5th year) the interest does not receive any tax deduction since the amount is not reinvested. Hence, The investor will have to pay tax on the final interest (receivable in the 5th year) as per the applicable slab rate.
What are the Documents Required to Purchase NSC?
You must be KYC compliant to purchase National Savings Certificate. Following are the list of documents to purchase the NSC:
- NSC Application Form
- Identity Proof such as PAN Card, Aadhar Card, Senior Citizen ID, or Voter ID
- Address Proof in the form of an ELectricity Bill, Passport, Telephone Bill, etc.
- Bank Statement along with a cheque
- Passport Size Photographs
Ways to invest in NSC
Previously, Banks and Post Offices pre-printed NSC certificates. However, the same has been discontinued.
Currently, you can invest via 2 mods:
- Electronic mode (e-mode)- If the investor holds a bank or a post office savings account with an internet banking facility, they can invest via e-mode.
- Passbook mode- Similar to a bank passbook, the certificates are recorded in a passbook or a printed e-mode format.
What is the Premature Withdrawal Procedure of NSC?
Even though NSC has a lock-in period of 5 years, it allows premature withdrawals in the following scenarios:
- In case of the death of the holder or holders (in case of the joint holder)
- If any court of law orders the withdrawal of the certificate
- If any Gazetted Government Officer forfeits the certificate
It is important to note that, if the certificates are withdrawn before the completion of 1 year, you will not receive the interest amount. Hence, only the principal amount will be receivable. If the certificates are withdrawn after the completion of 1 year then the entire contribution as well as interest will be received.
The following documents are necessary for the withdrawal process:
- NSC Original Certificate
- NSC Encashment Form
- Proof of identity
- The signature of the nominee on the certificate
- In case of a minor, attestation by a guardian is compulsory
- If there are no nominees, the legal heir can opt for encashment upon submission of form SB84
- In case of the demise of the account holder, the nominee can encash the certificate by submitting the following forms:
- Annexure 1: Claim settlement application (registered at a post office)
- Annexure 2: Claim settlement application (legal evidence)
Comparison with other Tax Saving Schemes
|Investment||Interest p.a.||Lock-in Period||Risk Profile|
|NPS||8% to 10%
|Till retirement||Market-related risks|
|ELSS||12% to 15%
|3 years||Market-related risks|
|FD||4% to 8%
Interest earned on maturity is taxable. During the investment tenure, annual accrued interest is not paid to the investor but instead, it is deemed reinvested. Since it is reinvested, it qualifies for deduction under section 80C thereby making it tax-free. However, when the NSC matures, the interest of the sixth year is not reinvested but paid out to the investor. So this interest amount upon maturity is not tax-free.
NSC is a one-time investment. You can invest a minimum of INR 1000 (in multiples of INR 100 i.e. Minimum deposit of INR 100) and there is no upper limit for investment. Once you invest, then you will receive the maturity amount after 5 years of the lock-in period.
No. HUFs and Trusts can not invest in NSC. The scheme is specially designed for Government employees, businessmen, and other salaried classes.
Yes, the lock-in period is equal to the maturity period of the certificates i.e. 5 years. One can redeem it early but only under specific conditions.
Yes, one can take a loan by keeping their certificates as collateral.
Yes, the nomination can be canceled or changed at any time by filling out Form 3 and paying a nominal fee of INR 5.