NSC, or National Saving Certificates, is one of the oldest schemes backed by the government. The National Savings Certificate (NSC) is a popular fixed-income investment scheme offered by the Government of India. It is designed to encourage small savings among individuals while providing them with a safe and reliable investment option. It is perfect for those looking to make a small investment earning a guaranteed return while saving taxes on investments up to Rs 1.5 Lakh.
In this article, we will discuss about national savings certificate in detail. Understand the use of the National Savings Calculator for calculating NSC tax exemption, benefits, procedures, eligibility etc.
NSC, or National Savings Certificate, is a Government Savings Bond that is useful for small investments and tax savings. These certificates can be acquired by any Indian resident from any post office across India. It is a low-risk Government-backed initiative with a fixed return. This is usually preferred by investors who are unwilling to take risks or people who wish to expand their base by a fixed return initiative.
You can invest in NSC from the nearest post office in your name, for a minor, or with another adult as a joint account. NSC comes with a fixed maturity period of five years.
There is no upper limit for investments in the National Saving Certificates, but investments of up to Rs 1.5 lakhs in NSCs are liable for a tax reduction under section 80C of the Income Tax Act.
| Interest Rate | 7.7% per annum |
| Minimum Investment | Rs.1,000 |
| Lock-in Period | 5 years |
| Risk Profile | Low-risk |
| Tax Benefit | Up to Rs.1.5 lakh under Section 80C |
NSCs are a short-term investment option in which you make an initial investment, earning a return at a rate fixed by the government. Once you have invested in the certificate, your interest for the year will be added to your investment, restricting you from investing more in the same certificate. However, you can invest your desired amount in another certificate, which can be purchased from any post office. The interest rate will remain fixed for the tenure of the certificate and is equal to that offered at the time of purchase.
For NSCs, the interest is compounded annually; it offers a higher return than any other scheme in which you would just earn simple interest (e.g., fixed deposits). This means that the interest earned in a year is added to the principal for calculation of interest for following years. Also, you have the option of opting for tax exemption on interest earned under section 80C, further increasing the net return from the investment. Combining the benefits from tax savings on the initial investment, tax savings on interest earned, and the guaranteed returns offered makes NSC a favored investment option.
The major difference between NSC and other saving schemes is the computation of interest. In NSC, the interest earned for one financial year is added to the principal amount for the next year. To understand this better, let’s take an example. Suppose you have made an investment of Rs. 100 in National Saving Certificate and the interest is computed annually at the 8% rate and will be payable at maturity. After the maturity period (5 years), the investment will grow to Rs. 144.23. Another major difference between NSC and other saving schemes is that in NSC, the income earned, that is, the return on investment, can be considered for tax exemption, while it is not possible for all other tax saving schemes.
Any individual interested in investing in NSC must -
Here are some key features and benefits of NSC:
The National Savings Certificate (NSC) offers several features and benefits to investors. Here are some key features and benefits of NSC:
| Tenure | 5 years |
|---|---|
| Rate of Interest | 7.7% p.a. |
| Minimum Amount | Rs.100 |
| Tax Benefits | Under Section 80C of the Income Tax Act |
Given below is the interest rate offered on NSC historically and in the current scenario -
| PERIOD | INTEREST RATE |
|---|---|
| Q1 FY 2023-24 | 7.7% |
| Q4 FY 2022-23 | 7.0% |
| Q3 FY 2022-23 | 6.8% |
| Q2 FY 2022-23 | 6.8% |
| Q1 FY 2022-23 | 6.8% |
| Q4 FY 2021-22 | 6.8% |
| Q3 FY 2021-22 | 6.8% |
| Q2 FY 2021-22 | 6.8% |
| Q1 FY 2021-22 | 6.8% |
| Q4 FY 2020-21 | 6.8% |
| Q4 FY 2019-20 | 7.9% |
| Q1 FY 2018-19 | 7.6% |
| Q2 FY 2018-19 | 7.6% |
| Q3 FY 2018-19 | 8.0% |
| Q4 FY 2018-19 | 8.0% |
| Q1 FY 2019-20 | 8.0% |
| Q2 FY 2019-20 | 7.9% |
| Q3 FY 2019-20 | 7.9% |
The National Savings Certificate (NSC) offers tax benefits to investors under Section 80C of the Indian Income Tax Act. Here are NSC's key tax benefits:
The NSC interest rates are compounded annually but payable only after maturity.
For example, you are investing Rs. 1000 in the certificates, making you eligible for a deduction in taxes on the principal amount for the first year. In the second year, you can ask for tax deductions on the investments that year as well as the interest accrued on the principal amount in the first year. You can claim tax deductions separately because the interest is added to the investment and is annually compounded.
There is no specified maximum limit for NSC investments; however, only investments up to Rs. 1.5 lakh annually qualify for a tax rebate under Section 80C of the Income Tax Act of 1961. Additionally, the interest earned on the certificates is reinvested in the initial investment and is eligible for a tax break.
During the initial four years, the interest accrued on NSC is assumed to be reinvested, making it eligible for a tax credit within the overall annual limit of Rs. 1.5 lakh. However, the interest earned in the fifth year is not reinvested and is consequently taxed at the investor's applicable slab rate.
Typically, premature withdrawal of investments in the National Savings Certificate is not permitted before maturity. However, special circumstances allowing early withdrawal include:
If you have invested in NSC and the NSC has matured or is close to maturity, our tax advisory service can help you understand the tax implications of the interest income from your NSC investment.
From July’16 onwards, NSC can be bought in two modes: electronic mode (E-mode) or passbook mode. After the discontinuation of paper certificates, one requires a Savings Account (either with a bank or post office) with or without Net Banking enabled to purchase the certificate.
Stepwise breakdown of the process-
The government has allowed Public Sector Banks and three Private Banks (ICICI, HDFC & Axis) to accept deposits under the National Savings Certificate scheme, so the account must be in one of these banks.
In case you don’t have the net banking services enabled, you can purchase the NSC in passbook mode. To get the passbook, follow the steps mentioned below:
Earlier, the process of buying NSCs was through the Indian Postal Service only. The process is as follows:
Earlier, there were two types of NSCs: NSC Issue VIII and NSC Issue IX. The basic difference lies between their maturity rate and the interest rate offered. However, NSC Issue IX has been discontinued since December 2015.
This issue of the National Saving Certificate is similar to its other counterpart except for the fact that it has a shorter maturity duration of 5 years and offers a slightly lower interest rate as compared to NSC Issue IX. All individuals are eligible for this certificate except for Trusts and HUF. These certificates can be issued in denominations ranging from Rs. 100 to Rs. 10,000.
NSC issue IX is an exact replica of issue VIII. These certificates had a longer maturity duration of 10 years and offered a slightly higher return owing to the fact that investments were held for a longer duration. These certificates have been discontinued from December’15 and are no longer issued. Like NSC Issue VIII, even these certificates were issued in denominations ranging from Rs. 100 to Rs. 10,000. There was no upper limit for investments like Issue VIII.
As the name suggests, this type of certificate is designed to be issued to a single individual. The individual in whose name the certificate is issued has the choice of appointing the nominee, but all the major decisions shall be made by the individual and not the nominee. Such a certificate can also be issued in the name of a minor to an adult; in this case, the adult should be the legal guardian of the minor.
This type of certificate is issued to two adults, and when the certificate matures, the amount is payable to both. The decision-making authority is shared by both individuals, and both holder's signatures would be required in case of cancellation, transfer, or change of nominee.
A Joint B Type Certificate is also issued to two individuals who share decision-making authority. However, the maturity proceeds of this type of certificate are payable to only one individual among the two.
This is the form required for purchasing an NSC from the post offices. It is a two-page document that needs to be filled with relevant information regarding the investment amount, details of the individual purchasing the NSC, and disclosure if the NSC is purchased on behalf of a minor. If a nominee is chosen, then you are supposed to fill in the necessary details in the designated space along with the signature of the individual and a witness. The receipt of Acknowledgement is at the bottom of the form; the next page is for official use and doesn’t concern us.
In case you have not appointed a nominee at the time of purchase, you can appoint one later via this form. All you need is the identification and residential information of the nominee, along with necessary proofs. In case you want to nominate a minor, their details will be furnished in the same form, along with the details of the guardian (if required). After providing all the information, submit the details of the certificate purchased for which the process of nomination is being done. Your signatures will be required to complete the process. If, due to certain circumstances, you are unable to do so, the officials will take your thumb impression along with the signature of a witness acquainted with the Post office.
National Saving Certificate Form 2 (NC-51)/ NSC Nomination Form
This form is used in case you want to change the nominee at any later stage. The form requires information about the new nominee along with the detailed information of the National Saving Certificate purchased. This form would require a witness from the post office and has to be submitted at the same post office from which the initial NSC was purchased.
National Saving Certificate Form 3 (SB-13A)/ NSC Nomination Form
Yes, a partial amount can be withdrawn from the account after the girl child (benefactor) turns 18 for her marriage or higher studies. However, the partial amount being withdrawn cannot be more than 50% of the total amount.
Nominating a person is not mandatory, but it is recommended as it benefits in case of the demise of the person holding the NSC. The proceeds from the NSC would go to the person nominated, or in the case of a minor, the adult responsible for the minor would be paid on their behalf. A Few pointers to keep in mind while nominating are:
NSC investments have a lock-in period of 5 years and are not subject to early withdrawals except in some cases:
In case you have relocated from where you purchased the NSC and wish to shift the NSC to a new bank/post office, you will have to fill out Form NC-32. The form would require information about the holder of the certificate, details of the certificate, and nominee details. This form can be submitted at either the old or the new bank/post office.
In case you want to transfer the ownership to another person, written consent from the postmaster of the issuing post office would be required. Even after this, transferring ownership is possible only under specific conditions, namely
For transferring the ownership,
needs to be filled, and some important points you need to be cautious about
The process of transferring ownership is as follows:
From July’16, the NSC has been issued in passbook and electronic form, but for individuals who have already invested in this scheme, losing their certificates is a big concern. In the end, NSC is paper certificates and can be easily damaged, destroyed, and even stolen, and you have to hold them for a duration of 5 years. Therein lies the risk of losing your certificate even before getting an option of encashing it.
However, there is a procedure for issuing duplicates in case originals become unfit to cash
To apply for an NSC (National Savings Certificate), you need to submit the following documents:
NSC is a secure government-backed savings product with a 7.7% annual interest rate. Individuals can invest up to Rs. 1.5 lakh per year, enjoying tax benefits under section 80C. Only individuals, not HUFs or trusts, can invest. The 5-year NSC is available at post offices, and premature withdrawal is not allowed. While interest earned yearly is tax-deductible, the final year's interest at maturity is not eligible for tax benefits.
| Product | Return | Risk | Lock-In | Loan/ Overdraft | Tax on Returns |
|---|---|---|---|---|---|
| Tax Saver FD | 5.75%-8.75% | Very Low | 5 Years | No | Yes |
| PPF | 7.1% | Very Low | 15 Years | Yes | No |
| NSC | 7.7% | Very Low | 5 Years | Yes | No (Only interest accrued on maturity is taxable) |
Key observations include:
Now that you know everything you must know about NSC, its eligibility, and benefits, you must already be thinking about investing in it. And, in case, you still need assistance with tax planning or want to save more taxes, you can reach out to our tax experts who navigate through 300+ provisions to find the one suited to your needs and file your ITR accurately. Hire an Online CA Now!
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