NSC is a small savings scheme offered by the Indian Post office. The certificates earn fixed interest, which is currently at 6.8% per anum. You can get a tax deduction on your investment. However, returns earned are taxable at maturity. This article will help you understand the various aspects that you need to consider when investing in NSC.
What is NSC?
NSC is a scheme which encourages small to mid-income investors to invest in savings scheme which will also help them in availing tax benefits and having a risk-free return 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.
What are the Features of NSC?
- Rate of Interest: The Interest rate offered is 6.8%
- Minimum and Maximum Investment: There is no maximum limit for investment. The minimum investment amount is INR. 1000/-. Effective from 1.4.2016, NSC can be issued for any amount above INR 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 INR 100, INR 500, INR 1000, INR 5000 and INR 10000
- TDS Applicability: There will not be any tax deduction at the source.
- Loan Against NSC: The savings certificates obtained can be kept as collateral security to get a loan from banks
- Rate of Return: It guarantees the same rate of return for the entire investment term
- Types: The NSC VIII issue has a fixed maturity period of 5 years. The NSC IX issued 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
- 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
Who is Eligible to Invest in NSC?
The government launched NSC as a saving scheme for residential individuals. National Savings Certificate aims to offer capital protection, even though the rate of interest is less than tax saving mutual funds or Public Provident Fund, the return is in this scheme is a guarantee.
- Indian residents can invest
- Trust and HUF cannot invest
- NRI’s can also not invest
What are the Tax Benefits of NSC?
Deposits up to INR 1,50,000/- per annum qualifies for IT deduction under section 80C of the Income Tax Act. The interest earned is taxable. But each year the interest considered is 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 certificates mature 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 Certificate.
- NSC Purchase Form
- Identity Proof such as PAN Card, Aadhar Card, Senior Citizen ID, Voter ID
- Address Proof in the form of ELectricity Bill, Passport, Telephone Bill
- Bank Statement along with a cheque
- Passport Size Photographs
What is the Premature Withdrawal Procedure of NSC?
Even though NSC has a lock in period of 5 years, premature withdrawals are allowed in the following scenarios:
- In case of 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 completion of 1 year, you will not receive the interest amount only the principal amount. If the certificates are withdrawn after the completion of 1 year than the entire contribution as well as interest will be received.
Following documents are necessary for the withdrawal process:
- NSC Original Certificate
- NSC Encashment Form
- Proof of identity
- Signature of the nominee on the certificate is required
- 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||Lock-in Period||Risk Profile|
|NPS||8% to 10% (expected)||Till retirement||Market-related risks|
|ELSS||12% to 15% (expected)||3 years||Market-related risks|
|PPF||7.9% (guaranteed)||15 years||Risk-free|
|FD||7% to 9% (guaranteed)||5 years||Risk-free|
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.
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 collatral.
Yes, nomination can be canceled or changed at any time by filling Form 3 and paying a nominal fee of INR 5.