National Savings Certificate (NSC): Tax Benefits, Interest Rate, Eligibility and How to Encash It
NSC (full form – National Savings Certificate) is a fixed income investment scheme that offers tax benefits up to Rs.1.5 lakh under Section 80C. The Government of India has introduced this savings bond to encourage investment among individuals. NSC scheme is a low-risk post office small savings scheme that requires a minimum investment amount of Rs.1000. The current NSC interest rate stands at 7.7%.
What is an NSC?
An NSC is an Indian Government savings bond that also offers tax-saving benefits. NSC is also a low-risk investment option, which is a part of the postal savings system. NSC is a great investment option for risk-averse investors who want a fixed income. The National Savings Certificate can be bought by an adult or two adults jointly or for a minor. NSC has a lock-in period of 5 years at an interest rate of 7.7% p.a.
Who Should Invest in NSC?
Individuals seeking a low-risk investment option to fetch stable interests can opt for NSC. The government has launched this tax-saving option for individuals. So, trusts and HUFs (Hindu Undivided Families) cannot avail of it. Further, NRIs are not eligible for this scheme. Only resident individuals of India can invest in NSC.
National Savings Certificate offers complete capital protection and guaranteed interest. Although it does not generate substantial returns like tax-saver mutual fund schemes, there are many advantages to this scheme. Take a look at the features and benefits of this scheme in the following section.
Features and Benefits of NSC
Following are the key highlights of a National Savings Certificate scheme:
- Corpus Post Maturity: After maturity, an individual can obtain the total maturity value. As there’s no TDS (Tax Deducted at Source) on NSC payments, an investor must settle the tax on it.
- Fixed Income: At present, NSC is delivering a return of 7.7% for subscribers. It offers higher returns than fixed deposits.
- Premature Withdrawal: An individual can’t leave this scheme early. Moreover, in case of a court order or an investor’s death, withdrawal requests will be accepted.
- Nomination: A subscriber has the option to nominate his/her loved ones. That’s because they can receive the payouts in the case of a subscriber’s demise.
- Interest Rate: Presently, the interest rate is 7.7%, and the Government of India revises it quarterly. Further, this interest gets compounded yearly and is payable after maturity.
- Small Investment Amount: An individual can start investing with an amount as low as Rs. 1,000.
- Tax Benefits: As per Section 80C of the IT Act, an individual may claim Rs. 1.5 lakh (maximum) as a tax deduction for investing in NSC.
- Types: This scheme offers two kinds of certificates — NSC IX Issue and NSC VIII Issue. In December 2015, the government discarded the NSC IX Issue. So, an individual can only subscribe to the NSC VIII Issue at present.
- Power of Compounding: Interest from these investments gets reinvested. Thus, investors can benefit from the benefit of compounding.
- Loan Collateral: NBFCs and banks accept NSC as security or collateral in case of secured loans. For this, a branch postmaster must transfer the certificate (with a transfer stamp) to the relevant bank.
- Easy Investment Process: An individual can buy NSC from a post office branch after the KYC verification procedure. He/she needs to submit the required documents to complete the application procedure. A post office branch can easily transfer this certificate to another branch.
- Maturity Period: NSC has a maturity period of 5 years.
Also Read: Tax Saving Options Other Than Section 80C Of The Income Tax Act
Who is Eligible for NSC?
The following are the eligibility requirements that one must fulfil to invest in NSC:
- An individual should be an Indian resident
- The individual shouldn’t be an NRI
- Trusts and HUFs cannot invest in NSC (National Savings Certificate) VIII Issue
- An adult can invest with another individual or on a minor’s behalf
- The government issues NSC in the denominations of Rs.10,000, Rs.5,000, Rs.1,000, Rs.500, and Rs.100
- There’s no maximum limit for the amount of investment
- No minimum or maximum age limit has been set for investing in NSC
Tax Benefits of NSC
Under Section 80C, a subscriber can get up to Rs.1,50,000 as a tax deduction for investing in NSC. Further, interest from this scheme gets added back to a subscriber’s original investment. Thus one can earn an income tax break.
Suppose an individual buys certificates amounting to Rs.1,000, he/she will qualify for a rebate of Rs. 1,000 during the first year. However, during the second year, he/she may claim a deduction for the investment that year and the interest during the first year. That’s because this interest gets added back to the initial investment amount.
How to Calculate Interest on NSC?
You can calculate interest on NSC using an easy online NSC interest calculator. An online calculator makes use of the following details:
- Amount of investment
- Date of purchasing NSC
Based on when the NSC was bought, a calculator will automatically fill in the interest rate.
Example:
Naina purchased NSC on July 1, 2019, and she invested Rs. 1 lakh. The lock-in period is 5 years, and the interest rate is 7.7% per annum. Let’s get the calculations from the following chart!
| Year | 1 | 2 | 3 | 4 | 5 |
| Investment Amount (in Rs.) | 1,00,000 | 1,07,900 | 1,16,424 | 1,25,622 | 1,35,546 |
| Interest Earned for the Year (in Rs.) | 7,900 | 8,524 | 9,198 | 9,924 | 10,708 |
| Total Interest Earned (in Rs.) | 7,900 | 16,424 | 25,622 | 35,546 | 46,254 |
| Total Sum (in Rs.) | 1,07,900 | 1,16,424 | 1,25,622 | 1,35,546 | 1,46,254 |
Hence, Naina will receive Rs.1,46,254 after the maturity of the certificate. She will earn an interest of Rs.46,254 over 5 years.
How to Encash NSC after Maturity?
If you want to encash NSC post maturity, you may do so by visiting the relevant post office branch from which you have bought the certificate. You need to furnish and submit the certificate transfer form to the required authority.
You may also request other post office branches, provided you furnish certain additional details related to the certificate. If a certificate is bought on a minor’s behalf, the initial buyer must sign the certificate. Further, the minor’s legal guardian should attest to it.
If you have directly purchased a certificate, you have to sign your certificate and submit the transfer form after receiving the required amount.
Is NSC Better Compared To Other Tax-Saving Instruments?
National Savings Certificate is one of the popular tax-saving investment options under Section 80C. The other well-known investment options under this Section are tax-saving fixed deposits, PPF (Public Provident Fund), NPS (National Pension System) and ELSS (Equity Linked Savings Scheme). Let’s compare NSC with other tax-saving schemes to understand if it is better.
| Investment | Risk Profile | Lock-in Period | Returns |
| NSC | Low risk | 5 years | 7.7% p.a. |
| FD | Low risk | 5 years | 3% – 8% p.a. |
| NPS | Low to high risk | Till retirement | Depends on the performance of the scheme (could be between 8%-10%) |
| PPF | Low risk | 15 years | 7.1% p.a. |
| ELSS Funds | High risk | 3 years | Depends on the performance of the mutual fund scheme |
Before we come to a conclusion, let’s compare NSC with KVP. Check the next section.
Comparing NSC with KVP
Both KVP and NSC are savings schemes. The Government of India issues NSC, while the Indian Postal Service offers Kisan Vikas Patra (KVP). Here are the differences between the two:
| Factors | KVP | NSC |
| How to Subscribe | At authorised bank branches or the post office | At a post office branch |
| Loan Facility | Available | Available |
| Tax Benefits | Not available | Available |
| Premature Withdrawal | Post 30 months from the date of investment | Not allowed |
| Investment Tenure | 124 months | 5 years |
| Interest Rate (2nd quarter of FY 2022-23) | 7.5% p.a. | 7.7% p.a. |
| Maximum Deposit Amount | No limit | No limit |
| Minimum Deposit Amount | Rs.1,000 | Rs.1,000 |
| Eligibility | Only trusts and resident individuals | Resident individuals only |
Also Read: Best SIP Mutual Funds To Invest In 2022: Which Plan Is Best For You?
Final Word
You may choose to invest in a Government savings bond like NSC as the lock-in period is low, provides tax benefits and is safe. It can help you meet your 5-year financial and tax-saving goals. However, you may also consider investing in other tax-saving instruments like PPF or tax-saving mutual funds (ELSS) to get better returns with a lock-in period of 15 years and 3 years respectively.
FAQs on National Savings Certificate (NSC)
Ans: At present, an individual can’t subscribe to National Savings Certificate online. You have to approach a nearby post office branch to furnish the application form. Once you have filled in the required details, submit it to an executive to open your NSC account successfully.
Ans: You can show the interest on NSC while filing income tax returns through one of the ways given below:
Do not claim your interest as income or deduction. Under this case, your interest will fall under other sources of income during the previous year. Just interest of the first 4 years will be applicable as a tax deduction.
You may claim a deduction on NSC interest but don’t showcase it as earnings. In this case, you may consider your interest income over the years as earnings during the previous year.
You may showcase your NSC interest under income from other sources.
Ans: You can find the National Savings Certificate number on your certificate. Remember to note down the certificate number. In case the original certificate gets stolen/lost, you can get a duplicate certificate using this number.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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