If you are looking for low-risk and high-return investment plans, National Savings Certificates (NSC) is an excellent option to opt. Secure your hard-earned money by investing in a Government saving bond National Saving Certificate of the Indian Government.
National Savings Certificate
The NSC full form is the National Savings certificate. The NSC has a history of 138 years. It is the oldest saving scheme under the Government saving bonds. In the year 1836, the Britishers adopted it to mobilize funds for World War II. It did not gain much popularity as people were not interested in investing money to help an alien nation to wage war.
After independence, the Indian Government urgently needed to mobilize funds for the nation’s development. In 1948 National Saving Organisation was renamed National Saving Institute under The Ministry of Finance. It conceived the importance of the National saving movement to emphasize the need for domestic savings for national development.
In 1949 the Constitution of India adopted and framed various small saving schemes. It listed the post Office Saving bank to issue and utilize the various Government small saving schemes under the post office small saving scheme. The popular and significant scheme is the National Savings Certificate. The Government of India keenly emphasises and promotes the NSC to collect funds for nation-building and development.
The National Savings Certificate, commonly known as NSC, is a Government Saving Bond. It has to be purchased from any post office across India. It is issued for a period of 5 years and 10 years as the lock-in period for your investment. Premature withdrawal will be allowed on the death of the NSC holder or by a court of law.
It is issued in the denominations of Rs. 100, 500, 1000, 5000, and 10,000. A minimum investment of Rs. 1000 is required with no limit on the maximum amount. The Government sets the interest rate, which is updated every three months according to the current inflation rate. The current interest rate on investments in NSC is 8.7% P.A. for 10-year lock-in period and 6.8 % for 5 year lock-in period compounded annually. Section 80c of the Income Tax Act of 1961 provides tax for investing in NSC.
What is a National Savings Certificate?
The National Savings Certificate is a bond program designed to incentivize individuals, particularly those with moderate incomes, to invest and simultaneously save on their income tax liabilities under Section 80C.
Who Should Invest in National Savings Certificate?
The National Savings Certificate, similar to other fixed income instruments such as the Public Provident Fund and Post Office FDs, offers guaranteed interest and ensures the safety of the invested capital. However, it is unable to generate returns that outpace inflation like tax-saving Mutual Funds and National Pension Systems.
Essentially, the Indian government promotes the National Savings Certificate as a savings scheme exclusively for individual citizens of India. The eligibility criteria for investing in NSCs are as follows:
- Hindu Undivided Families (HUFs), trusts, and private/public limited companies are not eligible to invest in NSCs.
- Only Indian citizens can invest in NSCs, and Non-Resident Indians (NRIs) are not permitted to do so.
- There is no age limit for individuals seeking to purchase a certificate.
National Savings Certificate Tax Benefits
While there is no upper limit on the purchase of NSCs (National Savings Certificates), only investments up to Rs 1.5 lakh per year qualify for tax savings under Section 80C of the Income Tax Act, 1961.
Furthermore, the interest earned on NSCs annually, for the first four years, is considered as reinvested, meaning it is added back to the initial investment. This reinvested interest is also eligible for a tax deduction, within the overall annual limit of Rs 1.5 lakh. However, the interest earned in the fifth year is not reinvested and is therefore taxable based on the investor’s applicable tax slab rate.
As of the first quarter of 2023, the current NSC interest rate stands at 7.7%.
National Savings Certificate Eligibility for Investing
- Any Indian citizen can purchase NSC.
- An Indian citizen is eligible to invest in NSC from any post office thorough out India. However, the investor needs to request for certificate transfer if a withdrawal is to be made in other branches before maturity.
- There is no minimum or maximum age limit to invest in NSC
- Minors and adults can invest in NSC. Guardians can invest on behalf of the minors.
- Non-resident Indians cannot invest in NSC.
- Hindu undivided family, trust, and companies cannot invest.
- A maximum of 3 persons is allowed to hold a joint account.
Documents Required for National Savings Certificate Investment
- Original NSC form duly filled and signed by one or all the investors.
- Self-attested recent passport-size photograph.
- Copy of Permanent account number card with self-attested
- Copy of Aadhaar card with self-attestation
- Address proof of present address is different from the Aadhaar address
- Should produce all originals for verification
How to Invest in National Savings Certificate?
To invest in NSC (National Savings Certificate), you can follow these steps:
- Choose the mode of investment: NSC certificates can be purchased either from select private banks (such as ICICI, HDFC, and Axis) or from authorized banks and post offices.
- Visit the bank or post office: If you opt to invest in NSC through authorized banks or post offices, visit the nearest branch or post office that offers NSC services.
- Complete the application form: Request an application form for NSC investment and fill it out accurately and completely. Provide the necessary details such as your name, address, PAN (Permanent Account Number), and other required information.
- Submit supporting documents: Along with the application form, you may need to submit supporting documents such as proof of identity, proof of address, and PAN card. Ensure you have the necessary documents ready as per the guidelines provided by the bank or post office.
- Deposit the investment amount: Determine the amount you wish to invest in NSC and deposit the required funds accordingly. The minimum investment amount for NSC may vary, so verify the specific requirements with the bank or post office.
- Choose the type of NSC: Decide whether you want to invest in an individual NSC or a joint NSC account. If investing jointly, provide the necessary details and documents for all joint account holders.
- Complete the formalities: Fulfill any additional formalities or documentation required by the bank or post office. This may include signing relevant forms or declarations.
- Collect the NSC certificate: Once the application is processed and the investment amount is received, you will be issued an NSC certificate. This certificate serves as proof of your investment and contains details such as the investment amount, maturity period, and interest rate.
- Preserve the NSC certificate: Safely keep the NSC certificate in your possession, as you will need it at the time of maturity or in case you wish to encash or transfer the certificate.
NSC Tax Saving: In Income Tax, How Should NSC Interest rate Be Reported?
When ITR filing online, you can show NSC interest earned in one of the following ways:
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The interest earned from NSC can be shown under ‘Income from Other Sources.
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Interest earned from NSC can be deducted, but it is not shown as income. Your entire interest income over the years can be considered income in this case.
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Interest earned cannot be deducted or included in income. The interest earned in the last year will be counted as ‘Income from Other Sources. As a deduction, only the first four years’ interest will be taken.
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How to Withdraw the Investment After Maturity
NSC can be encashed by the investor at the post office where it has been issued. If the withdrawal has to be made in other branches, an application has to be submitted with details of NSC, registration and current address.
Documents Needed for Withdrawal on Maturity
- National Savings Certificate Encashment form filled duly with signature
- Original NSC with the signature of the investor on the backside.
- Identity proof like Aadhaar, passport, driving license, or any other government identity card.
NSC Investing: Who Should Do It?
Investing in NSC is a safe investment avenue that earns steady interest while saving on taxes. In addition to guaranteed interest, NSC offers complete capital protection. In contrast, tax-saving equity mutual funds and the National Pension System cannot deliver inflation-beating returns. Across the country, the government has made NSC available in post office branches to make it easier for prospective investors to access.
As a savings scheme for individuals, the government has promoted the National Savings Certificate. Therefore, Hindu Undivided Families (HUFs) and trusts cannot invest in it. In addition, even non-resident Indians (NRIs) cannot purchase NSC certificates. Individual Indian residents are only eligible for the scheme.
NSC Investment Tax Benefits
National Savings Certificates can earn subscribers a tax break if they invest up to Rs 1.5 lakh. Interest earned on the certificates can also qualify as a deduction under Section 80C.
In the first year, you can receive a tax rebate if you invest Rs 1,000 in certificates. You can deduct interest earned on the NSC investment(s) in the second year as well as the NSC investment(s) in the first year. The interest is compounded annually and added to the original investment.
Premature Withdrawal of NSC
Premature withdrawal under NSC is not allowed except in a few cases.
- Upon the death of the investor
- The legal heirs can prematurely close the investments of NSC, submitting sufficient proof of the death of the investor.
- By the court of law requesting foreclosure of investment in settlement of case pertaining to the inheritance of such investments.
- The investor can close the NSC within one year, but interest will not be paid for the investment, and a penalty will be charged.
Benefits of National Savings Certificate
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Tax Benefits
The principal amount invested is allowed as a deduction under section 80C. Up to Rs. 15 lakh can be claimed as a deduction as per the Income Tax Act 1961
The interest earned on the principal amount is reinvested in NSC. A deduction to the extent of Rs. 1.5 lakhs as per the provisions of the Income Tax Act of 1961 under section 80C.
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Transfer Benefits
National Savings Certificate can be transferred to any person by the investor. The certificate will remain the same. The original investor’s name will be canceled, and the name of the new investor be entered. One transfer per maturity period is allowed. Transfer of NSC from one post office to another post office is possible.
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Interest Rate
NSC gives the highest interest rate compared to other fixed deposit schemes. The current rate is 8.8% per annum. Investors can receive tax-free benefits and assured returns in NSC for 5 and 10 years of the plan. The interest earned on investment gets compounded and reinvested automatically.
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Secured and Risk-Free Investments
National Savings Certificate has backed the assurance of the Government of India. It is the safest mode of investment with almost no risk factor.
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No Tax Deduction at Source
The investor will receive the entire amount and interest accumulated with any tax deduction at the source. The investor will pay income tax as per section 80c of the Income Tax Act of 1961: https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx
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Mortgage of National Savings Certificate
NSC can be mortgaged for a loan as security with any bank or financial institution. Therefore, it is considered collateral for loans and advances in all banks across India.
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Online Facility
Online NSC transactions are possible if the investor has a post office saving Bank account.
A nomination facility is available even if the investor is a minor.
Who Can Invest in NSC?
Individuals with low income need to start by saving in small amounts.
An investor looking for affixed income at regular intervals with a guaranteed rate of interest, low risk, and to save tax can always opt for National Savings Certificate.
Duplicate National Savings Certificates Issue
In the event that your original NSC certificate is lost, stolen, destroyed, damaged, or mutilated, you have the option to request a duplicate certificate.
To initiate the process, you need to complete the Duplicate Savings Certificates form and submit it to the post office from which the NSC was originally issued.
The form will require you to provide the following key details:
- Information regarding the certificate(s), including serial numbers, denominations, NSC issuance details, and so forth.
- The date when the certificates were initially purchased.
- Along with other necessary information, you will need to state the reason for applying for a duplicate certificate.
By filling out the form accurately and providing the required information, you can initiate the process of obtaining a duplicate NSC certificate.
| National Savings Certificate – Key Highlights | |
| Interest Rate | 7.7% p.a. |
| Tenure | 5 Years |
| Investment Amount |
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| Tax Benefit | Up to ₹1.5 lakh under Section 80C of the Income Tax Act |
Modes of Holding of National Savings Certificate
These modes provide flexibility for investors to choose the most suitable option based on their specific requirements and preferences.
- Single Holder Type certificate: This type of certificate can be purchased by an investor either for themselves or on behalf of a minor.
- Joint A Type certificate: In this mode, the NSC certificate is jointly held by two investors, with both individuals having an equal share of the maturity proceeds.
- Joint B Type certificate: Similar to the Joint A Type, this is a joint holding certificate. However, in this case, the maturity proceeds are paid out to only one of the holders, as specified by the joint holders.
Aadhaar and PAN Now Mandatory for NSC Account
According to a recent notification from the Ministry of Finance, certain requirements have been introduced for opening and maintaining National Savings Certificate (NSC) accounts. Here are the key points:
Opening a New NSC Account
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- To open a new NSC account, it is mandatory to provide your Aadhaar number and PAN (Permanent Account Number).
- If you haven’t been assigned an Aadhaar number yet, you need to provide proof of application or enrollment ID for Aadhaar at the time of account opening. However, you must furnish your Aadhaar number to the accounts office within 6 months from the date of opening the account.
Existing NSC Accounts
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- If you already have an existing NSC account and have not submitted your Aadhaar number, you are required to do so within 6 months from 1st April 2023.
- Additionally, if you haven’t provided your PAN at the time of opening your NSC account, you must submit it within 2 months from the occurrence of any of the following events, whichever is earliest:
- The balance in the NSC account exceeds Rs. 50,000 at any given time.
- The total credits in the account during a financial year exceed Rs. 1 lakh.
- The total withdrawals and transfers from the account in a month amount to more than Rs. 10,000.
Consequences of Non-Compliance
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- Failure to submit the Aadhaar number within the specified period of 6 months and the PAN within the specified period of 2 months will result in the NSC account becoming inoperational.
- The NSC account will remain inactive until the Aadhaar number and/or PAN are submitted to the accounts office.
Tax Implications of National Savings Certificate
The primary benefit of investing in NSCs (National Savings Certificates) is their tax-saving nature. The invested principal amount qualifies for a tax deduction under Section 80C, with a limit of Rs. 1.5 lakh. However, the tax treatment for the interest earned on NSCs differs.
For the first four years, the annual interest earned on NSCs is considered to be reinvested. As a result, it is exempt from tax and can also be claimed as an additional deduction under Section 80C, within the overall annual limit of Rs. 1.5 lakh.
In contrast, the interest earned in the fifth year of NSCs is not reinvested and therefore becomes taxable based on the investor’s applicable income tax slab rate.
Loan Against National Savings Certificates
If you wish to avail a loan using your National Savings Certificate (NSC) investments as collateral, there are certain terms and conditions that apply. Here are the key points to consider:
- Eligibility: Only resident Indians are eligible to apply for a loan against NSC. Non-resident Indians (NRIs) are not eligible for this facility.
- Availability: Currently, leading private and public-sector banks offer loans against NSC. You can inquire with these banks to explore this option.
- Margin: The margin requirement for a loan against NSC depends on the remaining time until the maturity of the NSC. Specific details regarding the margin will be provided by the lending institution.
- Interest Rate: The interest rate offered on the loan against NSC can vary depending on factors such as the individual loan applicant’s profile and the specific bank providing the loan. It is advisable to check with the lender to determine the applicable interest rate.
- Loan Tenure: The loan tenure is typically equal to the remaining time until the maturity of the NSC that is being used as collateral. The exact tenure will depend on the specific terms and conditions set by the lender.
Premature Withdrawal
The NSC-VIII (National Savings Certificate – VIII) has a mandatory lock-in period of 5 years, during which premature withdrawal is only allowed under specific circumstances, including:
- In the event of the death of the NSC holder.
- When a Gazetted Government Officer, who holds the NSC as a pledgee, forfeits the certificate.
- If a court orders the premature withdrawal of the NSC.
These cases permit premature withdrawal from NSC-VIII, whereas under normal circumstances, the certificate cannot be withdrawn before the completion of the 5-year lock-in period.
Conclusion
National Savings Certificate is an excellent option to invest in as it is completely protected and backed by the Government of India. Individuals looking for a safe option of investments with steady earnings on interest and saving on taxes can choose National Savings Certificate. To understand and avail of maximum tax benefits by investing in NSC can use platforms like Vakilsearch as a help advisory.
FAQ’s on National Savings Certificate
Q: Is NSC Interest Taxable?
A: The interest earned on NSC is taxable. However, for the first four years, the interest is deemed to be reinvested and qualifies for a tax deduction under Section 80C. The interest earned in the fifth year is taxable as per the investor's applicable income tax slab rate.
Q: How to Withdraw NSC After Maturity?
A: To withdraw NSC after maturity, you need to visit the post office or bank where the certificate is held. You will be required to fill out the necessary forms and provide identification documents. The maturity amount, including the principal and accumulated interest, will be paid out to you.
Q: What are the tax advantages of NSC?
A: NSC offers tax advantages as the principal amount invested in NSC is eligible for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Additionally, for the first four years, the interest earned is deemed to be reinvested and qualifies for a tax deduction under Section 80C, subject to the overall annual limit.
Q: How many NSCs can be purchased?
A: There is no specific limit on the number of NSCs that can be purchased. However, tax benefits under Section 80C are available on investments up to Rs. 1.5 lakh per year.
Q: What is the rate of interest on NSC in post office in 2023?
A: The rate of interest on NSC in post offices for 2023 is currently 7.7% per annum. It is subject to change and may vary from year to year.
Q: How many NSCs can one buy?
A: There is no maximum limit on the number of NSCs that can be purchased. However, the tax benefits under Section 80C are available on investments up to Rs. 1.5 lakh per year.
Q: Can NSC be encashed before its maturity?
A: Generally, NSC cannot be encashed before its maturity period of 5 years. However, there are specific circumstances, such as the death of the NSC holder, forfeiture by a pledgee who is a Gazetted Government Officer, or court order, where premature withdrawal of NSC may be permitted.
