National Savings Certificate (NSC) is a tax saving investment with the aim to encourage small or medium savings backed by Central Government.
The NSC scheme is available at all Post Offices and promoted by the Indian Government. Since the scheme is backed by the Indian Government, the risk is considered to be very low.
The scheme is applicable only to Indian citizens and not applicable for Non-Resident Indian (NRI) and a HUF. Due to the income tax benefits, low minimum investments requirement and low risk, the national pension scheme is gaining popularity.
The eligibility criteria for an investor is listed below:
The NSC interest rates are regulated by the Government every quarter. The current NSC interest rate is 6.8% annually. The interest is compounded annually but paid at the maturity of the certificate. With the compounding of interest, the returns are automatically reinvested but still do not beat inflation.
Below are the documents required to submit:
NSC can be transferred from one post office to another. It can also be transferred to another individual. The certificate will be the same, the name of the old owner will be rounded and the name of the new owner will be mentioned.
The principal investment amount invested is allowed as a deduction under section 80C The deduction is limited up to Rs .15 lakh as per the Income Tax Act 1961
The interest earned on the principal amount is treated as a re-invested in NSC. Hence it is allowed as a deduction under section 80C up to Rs 1.5 lakh as per the Income Tax Act 1961
The interest earned is first added to the total income of the investor and then allowed as a deduction. Hence, tax is also deducted on the interest earned.
According to the withdrawal rules, the NSC investments cannot be withdrawn before the maturity period. The maturity period can 5 years or 10 years as the case may be.
If the amount invested is withdrawn within a year, interest will not be paid. Plus, a penalty will be also be charged to the certificate holder
However, premature withdrawal is allowed in the following cases:
The withdrawal rules require the filing of the following documents. The documents must be submitted by the certificate holder to withdraw:
Below are the benefits of investing in an NSC scheme:
An investor looking for the below can consider investing:
The scheme has the above benefits along with a few disadvantages like lower interest rates and no inflation adjustment. Unlike tax saving mutual funds and National Pension System, it does not provide inflation bearing returns.
However, it totally depends on the financial goals of the investor. The government has made all the attempts to make the scheme accessible to the investors. It is available at all the post offices with an easy to go process of registration.
National Saving Certificate is one of the tax saving schemes with tax deduction u/s 80C of The Income Tax Act 1961. There are other schemes available as well. These schemes are Public Provident Fund (PPF), tax saver fixed deposit, ELSS funds and National Pension Scheme.
The following table provides a comprehensive comparison of NSC vs other tax benefit schemes
|Tax Saver Investment||Lock-in Period||Risk||Interest Rate|
|Public Provident Fund||15 years||Low||7.10%|
|ELSS Funds||3 years||Market-Related Risk||Depends on market|
|Tax Saver Fixed Deposit||5 years||Low||5% to 7%|
|National Pension Scheme – NPS||Till the age of 60 years||Market-Related Risk||8% to 10%Depends on market|
Now that we know all about the scheme, if you are looking for a fixed income, save tax with low risk, this is surely suitable. But there are other investment options as well that are tax saving options being inflation-adjusted as well. You can compare all the investment options and invest wisely.
An investment is not allowed to a HUF or a Trust in NSC under the rules of Issue VIII.
The maturity period for NSC Issue VIII is 5 years and the NSC interest rate is 8.5% per annum.
The maturity period for NSC IX is 10 years and the NSC interest rate is 8.8% per annum.
Yes, the savings certificate interest rates are different for NSC issue. For NSC issue VIII is 8.5% p.a. and NSC IX interest rate is 8.8% p.a.
The nomination can be canceled or changed at any time by submitting the FORM-3 by paying a fee of Rs 5
Yes, you can avail loans against NSC. NBFCs and Banks accept it as a collateral for a secured loan. the postmaster should put a transfer stamp to the certificate and transfer it to the bank.
Taxation on mutual funds is a complex topic. Taxes paid on your mutual fund investments vastly depend on factors such as what kind of funds you have invested in, the duration of your investment, which income tax slab you belong to and so on.