The National Savings Certificate (NSC) is a prominent and secure investment tool that blends tax savings and assured returns respectively. This investment vehicle is government-backed and is accessible at post offices. The range of India Post's dissemination is liable for the prominence of this investment tool. Your capital is fully secured when invested in the NSC as the scheme is backed by the Government of India. The NSC is therefore not covered by inflation. This suggests that the investment does not receive overall return whenever inflation is above the current assured interest rate. Overall, when the inflation rate falls below the fixed interest rate, a positive effective rate of return is achieved. As a fixed return, tax saving strategy and low risk investment backed by the Government of India, NSC is commonly favoured by risk-averse investors or those looking to diversify their investments through a fixed return tool and can thus be purchased by an Indian resident from any post office.
Key takeaways of NSCs
With two tenures, 5 years (NSC VIII) and 10 years (NSC IX), earlier NSCs were available. Only the 5-year NSC VIII is presently available for subscription with the cessation of NSC IX. The following are key attractions of NSC VIII:
- With a lock-in period of 5 years, NSC can be conveniently purchased at any Indian Post Office.
- The returns on the NSC is assured. At present, on the five-year option, the interest rate is 6.8 percent which is compounded on an annual basis and paid after maturity.
- One can start investment by a minimum amount of Rs. 1000 and in multiples of Rs. 100 with no upper limit.
- Under Section 80C of the Income Tax Act, 1961, the principal deposited qualifies for tax savings of up to Rs. 1.5 lakhs annually.
- In banks and NBFCs, NSC certificates are approved as collateral or security for secured loans.
- Any family member (even a minor) can be nominated by the investor so that they can receive the interest income in the event of the investor's death in an unfortunate incident.
- Upon submission of the necessary KYC documents, NSCs can be conveniently bought from any post office. In addition, it is convenient to transfer the certificate from one post office to another and from one person to another without affecting the maturity amount of the original certificate.
- On maturity, the investor will earn the entire corpus value. The subscriber can pay the applicable tax on it while filing his income tax returns or calculating his advance tax, since there is no TDS applicable on NSC payouts.
- If compared to other fixed income instruments, this investment tool is currently bidding higher returns.
- Owing to the low required minimum deposit of Rs. 100 and no upper cap, NSC investments provide stability to the eligible investors.
Types of holding
The below are the various forms of holding the National Savings Certificate:
- Single type: This type of certificate can be purchased for self or on behalf of a minor.
- Joint A type: In this type two investors with an equal share of the maturity proceeds can purchase the certificate.
- Joint B type: In this type of joint account only one of the investors is paid out with the maturity proceeds.
NSCs are essentially tax saving investment vehicles as the principal amount deposited qualifies for tax deduction up to the cap of Rs. 1.5 lakhs under Section 80C. Although a specific tax treatment is available for the interest received on NSCs. The interest received annually from NSC (for the first four years) is thus considered to be reinvested free from tax and therefore eligible under Section 80C (subject to the maximum annual cap of Rs 1.5 lakhs) as a further tax rebate. The interest gained in the fifth year, however is not reinvested and thus taxable as per the prevailing tax bracket of the investor.
How to transfer NSCs?
As we have above discussed that without affecting the interest amount of the original certificate, NSCs can be transferred from one post office to another and also from one individual to another. NSC enables an investor the following transfer considerations:
- It is possible to transfer NSCs from one post office to another by submitting Form NC-32 to the post office which granted the original certificate before.
- It is also possible to transfer National Savings Certificates from one individual to another by submitting Form NC-34 at the authorizing post office. This can be undertaken only once before the maturity of the account.
Premature withdrawal facility
A premature withdrawal under NSC is only allowed in specific conditions such as:
- Sudden death of the primary holder
- On dismissal by a Gazetted Government Officers vow.
- On the authorization of the court for the early withdrawal of the NSC
Loan against NSCs
Subject to certain primary terms and conditions listed below, you will be entitled to obtain a loan against your National Savings Certificate deposits:
- You must be an Indian resident in order to apply for loan against NSCs
- This facility is currently offered by some private and public-sector banks only.
- The margin relevant to the NSC loan relies on the remaining time before maturity.
- The interest rate provided on NSC investments varies depending on the individual applicant for both the loan and the bank providing the loan.
- The tenure of the loan equals the remaining maturity period of the NSC used as security.
- Some of the standard loan properties against NSC are the above; distinct traits such as margin, interest rate, tenure, etc. appear to differ from lender to lender.
How to issue a duplicate certificate in case of lost or stolen?
You can get a duplicate certificate in case the original NSC certificate is lost, thieved, damaged, vandalised or disfigured. By filling the Form NC-29 and submitting the same to the post office that has provided the NSC, you can make a request to issue a duplicate certificate. In the application you will have to specify the specifics of your lost certificate such as serial numbers, denominations, NSC issue, date of issuance of the certificate and a valid reason for issuing a duplicate certificate.
Just like some other investments i.e. the Public Provident Fund and Post Office FDs, the NSC provides assured interest and maximum capital security. The Government has effectively introduced the National Savings Certificate as a saving scheme for individual Indian residents. Hence, investments in NSCs are not permissible for:
- Hindu Undivided Families (HUFs)
- Non-resident Indians (NRIs)
Documents required to invest in NSCs
You must keep handy the below listed documents in order to purchase a national savings certificate at any India Post Office:
- Duly filled application form
- Identity proof: Aadhaar card, PAN, Voter ID Card etc.
- Address proof: Aadhaar card, Driving license, passport, ration card
- Cheque details (if any)
How to purchase a National Savings Certificate?
NSC can be purchased from any Indian Post Office upon submission of the mandated documents. Follow the below listed steps to know the process in brief:
- Download the NSC Application Form online (also available offline at all Indian post offices) and duly fill out the form by specifying all the required details.
- Now attach self-attested copies of required KYC documents with the application form. (For verification purpose don't forget to carry your original documents as well).
- Enter the deposit amount that you are willing to invest and opt the payment mode i.e. cash or cheque.
- Submit the application form and take out the slip.
National Savings Certificate Interest Rate
As per the announcements conveyed by the Finance Ministry, the National Savings Certificate interest rate is subject to periodic alteration. For Q1 FY 2020-21 (April to June), the effective NSC interest rate is 6.8 percent. The below are the scheme's historical interest rates:
|Q1 FY 2020-21||6.80%|
|Q4 FY 2019-20||7.90%|
|Q1 FY 2018-19||7.60%|
|Q2 FY 2018-19||7.60%|
|Q3 FY 2018-19||8.00%|
|Q4 FY 2018-19||8.00%|
|Q1 FY 2019-20||8.00%|
|Q2 FY 2019-20||7.90%|
|Q3 FY 2019-20||7.90%|
Interest rate comparison of NSCs and other small savings schemes
|Scheme||ROI||Min and max investment|
|Senior citizen saving scheme||7.40%||Rs 1000 to Rs 15 lakh|
|Sukankya Samriddhi Account||7.60%||Rs 250 to Rs 1.5 lakh|
|Public Provident Fund||7.10%||Rs 500 to Rs 1.5 lakh|
|5 Year NSC VIII Issue||6.80%||Rs 1000 and no upper limit|
|Time Deposits||5.50 to 6.70%||Rs 1000 and no upper limit|
|Post Office Monthly Income Scheme||6.60%||Rs 1000 to Rs 4.5 lakh for single|
|Post Office Monthly Income Scheme||6.60%||Rs 1000 to Rs 9 lakh for joint|
|Kisan Vikas Patra||6.90%||Rs 1000 and no upper limit|
|Recurring Deposits||5.80%||Rs 100 and no upper limit|
|Post Office Savings Account||4.00%||Rs 500 and no upper limit|