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.
Table of Contents
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.
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 NSC 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
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:
-
The interest earned from NSC can be shown under ‘Income from Other Sources.
-
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.
-
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.
-
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 National Savings Certificate 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
-
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.
-
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.
-
Interest Rate
National Savings Certificate 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.
-
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.
-
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
-
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.
-
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 – https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=90
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.
Helpful Links
- What are the Maximum and Minimum Pension?
- Complete details on different types of ITR
- How to pay TDS for Interest on Fixed Deposit?
- Depreciation Rate under Income tax act
- How to download Income Tax Assessment Form?
- How Provident Funds come under Section 80C?
- What is the Procedure for ESI Registration and Returns?
- Updates in new offline ITR utility
- What Is Voluntary Provident Fund (VPF)?
- What’s the Difference Between EPS and EPF?
