NSC (National Savings Certificate): Features, Tax Benefits & Eligibility

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By Hiral Vakil on March 6, 2019

NSC i.e. National Savings Certificate is a small savings scheme offered by the Indian Post office. The certificates earn fixed interest, which is currently at 8.0% per anum. The investment amount is tax deductible, 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, NSC does not earn inflation-beating return like Tax saving Mutual funds.

Tax Savings & Deductions

Features of NSC i.e National Savings Certificate:

  • The Interest rate offered by NSCs is 8.00%.
  • There is no maximum limit for investment. The minimum investment amount is INR. 100/-. Effective from 1.4.2016, NSCs 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 NSC 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.
  • The NSCs guarantee 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 has been discontinued w.e.f. 20.12.2015. Transfer of certificates from one person to another can be done only once from 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 currently existing physical certificates will be discontinued.

Who can invest in NSC? 

  • Indian resident can invest in NSC.
  • Trust and HUF cannot invest in NSCs.
  • NRI can not invest in NSC.

What are the tax benefits of NSC?

Deposits up to INR 1,50,000/- per annum under NSC qualifies for IT deduction under section 80C of Income Tax Act. NSC interest 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.

Section 80C: Deductions for Tax Saving Investments

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
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FAQs: 

1. Is the maturity value of NSC taxable?

Interest earned on the maturity of NSC 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.

2. Is NSC one time investment?

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.

3. Can HUF invest in NSC?

No. HUFs and Trusts can not invest in NSC. The scheme is specially designed for Government employees, businessmen and other salaried classes.