NSC is a small savings scheme offered by the Indian Post office. The certificates earn fixed interest, which is currently at 8.0% per anum. You can get a tax deduction on your investment. However, returns earned are taxable at maturity.
The main objective of investing in the NSC is to avail tax benefits and risk-free returns on investment. This scheme is popular amongst government employees and other salaried taxpayers. However, it does not earn inflation-beating returns like Tax saving Mutual funds.
Features of NSC:
- The Interest rate offered is 8.00%.
- There is no maximum limit for investment. The minimum investment amount is INR. 100/-. Effective from 1.4.2016, NSC can be issued for any amount above Rs.100 in one transaction, provided the certificate is issued for an amount rounded off to the nearest 100. One transaction of one (set of) investor(s) should result in only one certificate in e-mode or one entry in the passbook on one day. So the issue of the certificate need not be dependent on the availability of a pre-printed certificate of the appropriate denomination. Earlier, it could only be issued in denominations of Rs 100, Rs 500, Rs 1000, Rs 5000 and Rs 10000.
- There will not be any tax deduction at source.
- The savings certificates obtained can be kept as collateral security to get a loan from banks.
- It guarantees the same rate of return for the entire investment term.
- The NSC VIII issue has a fixed maturity period of 5 years. The NSC IX issue with a fixed maturity period of 10 years had been discontinued w.e.f. 20.12.2015. Transfer of certificates from one person to another can be done only once from the date of issue to the date of maturity.
- 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.
Who can invest?
- Indian residents can invest.
- Trust and HUF cannot invest.
- NRI can not invest.
What are the tax benefits?
Deposits up to INR 1,50,000/- per annum qualifies for IT deduction under section 80C of Income Tax Act. The interest earned is taxable. But each year the interest is considered reinvested in the NSC. 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 Sec 80C, thereby making it tax-free. When the NSC matures, it does not receive any tax deduction since the amount is not reinvested. The investor will have to pay tax on the final interest.
What are the documents required to purchase NSC?
You must be KYC compliant to purchase National Savings Certificates.
- NSC Purchase Form
- Identity Proof
- Address Proof
Interest earned on the maturity of 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 taxfree.
NSC is a one-time investment. You can invest a minimum of Rs. 100 and there is not an 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.