NSC (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 product that requires a minimum investment amount of Rs. 1000/-.
If you are looking for a good tax-saving Investment option, you may consider NSC. But first, know the eligibility, features, benefits and compare it with other tax-saving options before you decide. Read on!
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 6.8% p.a.
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 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 of this scheme. Take a look at the features and benefits of this scheme in the following section.
Following are the key highlights of a National Savings Certificate scheme:
The following are the eligibility requirements that one must fulfil to invest in 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 on 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.
You can calculate interest on NSC using an easy online NSC interest calculator. An online calculator makes use of the following details:
Based on when the NSC was bought, a calculator will automatically fill in the interest rate.
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 6.8% per annum. Let’s get the calculations from the following chart!
|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.
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.
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||6.8% p.a.|
|FD||Low risk||5 years||4% – 6% 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.
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:
|How to Subscribe||At authorised bank branches or the post office||At a post office branch|
|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 2021-22)||6.9% p.a.||6.8% 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|
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.
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: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 145A||Section 80P||Section 92CD|
|Section 281||Section 32(2)||Section 270A|
|Section 1399||Section 192A||Section 11|
|Section 35AD||Section 80C||Section 32|
|Section 206AA||Section 92E||Section 9|
|Section 153||Section 10(10D)||Section 194DA|
|Section 10AA||Section 80GG||Section 80TTB|
|Section 80JJAA||Section 1940||Section 23B|
|Section 206AB||Section 44AB||Section 87A|
|Section 115JB||Section 154||Section 194D|
|Section 194J(1)(ba)||Sectio 80U||Section 194K|
|Section 56-59||Section 80TTA||Section 234C|
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