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?
Deposits up to INR 1,50,000/- per annum qualify for IT deduction under section 80C of the Income Tax Act.
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.
There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.
Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.
Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.
The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).
Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).
As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.
Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.
No issues. You’re welcome!
In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.
However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.
Hope, it helps!
Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?
There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?
I couldn’t find anything on this. Any help is appreciated.
Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.
Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.
These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!
Also, interest earned on these bonds will be taxable.
Hope this helps!
Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total
Hey @Sheirsh_Saxena, yes, the investment amount needs to be added under 80C.
Continue the conversation on TaxQ&A
87 more replies