When it comes to investments, we have a myriad of possibilities. You can choose any of them based on your financial objectives. One such alternative is the National Savings Certificate or NSC which not only provide a slew of perks but also risk-free returns. It is a savings fund issued by the Government of India that allows subscribers to purchase from any post office. By keeping in mind the current low rates of FD spanning around 5%, NSC can be a good bet here for risk-averse investors and tax-savers. This scheme, like the Public Provident Fund, Bank FD, Bank or Post Office Savings Account and Post Office FDs, is a stable and low-risk fixed-income investment. Here's all you need to know about NSC and its tax benefits that you must keep in mind before purchasing.
Benefits of 5-Year National Savings Certificate
Here's all you need to about NSC and its benefits:
- You will currently earn fixed returns of 6.8% annual interest and get a regular income. The interest rate on NSC is much higher than the interest rate of bank FDs, which is now as low as 5 to 6%.
- There were two forms of certificates in the scheme at first: NSC VIII Issue and NSC IX Issue. NSC IX Issue was closed down by the government in December 2015. So far, only the NSC VIII Issue is available for purchase.
- You can invest up to Rs.1.5 lakh in this government-backed tax-saving scheme to invoke the tax-deductions under section 80C.
- You can make a deposit with a minimum of Rs.1,000 (or multiples of Rs.100), with no upper limit.
- The current interest rate is 6.8% p.a., with the government revising it every quarter. It will be compounded annually and paid out at maturity.
- National Savings Certificate (NSC) comes with a tenure of 5 years
- By submitting the required documents and completing the KYC process, you can buy this certificate from any post office. It's also simple to transfer the certificate from one post office or from one individual to another. To know more about the transfer process click here.
- NSC is accepted as collateral or security by banks as well as NBFCs (Non-banking financial companies) or secured loans. To do so, the responsible postmaster must stamp the certificate with a transfer stamp and submit it to the respective bank or NBFC.
- Both single type and joint type accounts can be opened for this scheme.
- In the unfortunate event of the investor's death, the investor can nominate a family member (even a minor) to claim the maturity amount.
- You will be paid the full maturity value on the maturity date. Because no TDS is deducted from NSC payouts, the subscriber is liable for paying the relevant tax.
Premature closure of the account
In most instances, it is difficult to exit the scheme early. However, under specific circumstances such as the death of an investor or in case if court order premature withdrawal is possible. Only the principal amount is payable if an account is prematurely closed before the one-year from the date of account opening. In case the account is prematurely closed after one year but before three years from the date of deposit, the premature closure will be permitted, and interest on the principal amount will be paid at the rate applicable to the Post Office Savings Account from time to time for the entire months the account has been kept. The amount payable, inclusive of interest accrued for a deposit of one thousand rupees and at a proportionate rate for other amounts of deposits, if an account is prematurely closed after three years from the date of opening, is as stated in the table below.
|The term between the account's opening and its premature closure||Amount payable including rate of interest in Rs|
|Three years or more, but less than three years and six months||1221.61|
|Three years and six months or more, but less than four years||1263.05|
|Four years or more, but less than four years and six months||1305.9|
|Four years and six months or more, but less than five years||1350.2|
Payment in case of death of the account holder
The eligible amount in the account is payable in the case of the death of the depositor of a single account or of all the depositors of a joint account. If a nomination is in effect at the time of the demise of the depositor of a single account or any of the depositors of a joint account, the nominee may send an application in Form-2 to the administrative department for payment of the eligible balance, along with proof of the depositor's demise and, if any other nominee has also died, proof of such nominee's demise. If there are two or more standing nominees, the eligible balance will be allocated in the proportion indicated by the depositor while making the nomination, or in equal proportion to all viable nominees if no such proportion or portion is stated. If a nominee dies, his designated portion of the eligible balance is divided among the existing nominees in the same proportion as their defined portions. If the surviving nominee is a minor, the payment will be made to a person designated by the depositor to receive that payment, or to the minor's guardian if no such person has been designated.
Tax benefits on National Savings Certificate
A tax benefit of up to Rs.1.5 lakh can be received by investing in the National Savings Certificate under Section 80C. In addition, the interest paid on the certificates is credited back to its initial purchase, making it eligible for a tax exemption. For example, if you spend Rs.1,000 in certificates, you will be eligible for a tax refund on that amount during the first year. However, you can claim a tax deduction for both the NSC investment(s) and the interest received in the first year in the second year. This is how interest is accrued annually and added to the initial investment.
NSC vs other tax-savings investments
NSC is among the tax-saving investment vehicles under Section 80C that provide assured returns along with tax benefits. Below we compare other instruments with NSC for a better glance at a good tax-saving bet.
|Tax-saving investments||ROI||Lock-in period||Risk|
|ELSS||14 - 22 % (3-year returns, source: Value Research)||3 years||High|
|NPS||9 - 16% (Tier-1, 5-year returns, source: NPS Trust)||Until retirement||High|
|5-year tax-saving FDs||Up to 6.75%||5 years||Low|
Who should invest in NSC?
This scheme is ideal for those looking for a secure investment alternative that helps them to save tax while generating a stable income and full capital security. However, unlike ELSS and NPS, NSC is unlikely to generate inflation-beating returns over the last 5 years. By making NSC available in post offices, the government has made it more affordable for potential investors. The National Savings Certificate is simply a fixed-income scheme that is backed by the government of India which makes it a secure bet for risk-averse investors, unlike ELSS or NPS. Seeing as you have understood what there is to discover about NSC and its advantages, you can confidently state that this safe and low-risk investment bet. This is the scheme to invest in whether you want your capital to be secure, or if you want to diversify your portfolio with an instrument that provides a fixed return as well as tax benefits.