National Savings Certificate (NSC)

1. What is National Savings Certificate

The National Savings Certificate is a fixed income investment scheme that you can open with any post office. A Government of India initiative, it is a savings bond that encourages subscribers – mainly small to mid-income investors – to invest while saving on income tax. A fixed-income instrument like Public Provident Fund and Post Office FDs, this scheme too is a secure and low-risk product. You can buy it from the nearest post office in your name, for a minor or with another adult as a joint account. They come with a fixed maturity period of five years. There is no maximum limit on the purchase of NSCs, but only investments of up to Rs.1.5 lakh can earn you a tax break under Section 80C of the Income Tax Act. The certificates earn a fixed interest, which is currently at a rate of 6.8% per annum.  

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2. Who Should Invest in NSC?

Anyone looking for a safe investment avenue to save taxes while earning a steady income can opt for this scheme. The NSC offers guaranteed interest and complete capital protection. However, like most fixed income schemes, they cannot deliver inflation-beating returns like tax-saving mutual funds and the National Pension System. The government has made NSC easily accessible for prospective investors by making it available in post offices. The government has made NSC easily accessible for prospective investors by making it available in post offices. Basically, the government has promoted the National Savings Certificate as a savings scheme for individuals. Hence, Hindu Undivided Families (HUFs) and trusts cannot invest in it. Furthermore, even non-resident Indians (NRI) cannot purchase NSC certificates. The scheme is open only for individual Indian citizens.

3. Features & Benefits of NSC

1. Fixed income: Presently, you get guaranteed returns (6.8% annual interest) and can enjoy a regular income.
2. Types: The scheme originally had two types of certificates – NSC VIII Issue and NSC IX Issue. The government discontinued NSC IX Issue in December 2015. So, only the NSC VIII Issue is open for subscription currently.
3. Tax saver: As a government-backed tax-saving scheme, you can invest for up to Rs.1.5 lakh to claim the benefits of 80C deductions.
4. Start small: You can invest as low as Rs.1,000 (or multiples of Rs.100) as an initial investment, and increase the amount when feasible.
5. Interest rate: Currently, the rate of interest is 6.8% p.a., which the government revises every quarter. It gets compounded annually but will be payable at maturity.
6. Maturity period: The maturity period is five years.
7. Access: You can purchase this scheme from any post office by submitting the necessary documents and doing the KYC process. It is easy to transfer the certificate from one PO to another too.
8. Loan collateral: Banks and NBFCs accept NSC as a collateral or security for secured loans. To do this, the concerned postmaster should put a transfer stamp to the certificate and transfer it to the bank.
9. Power of compounding: Interest you earn on your investment gets compounded and reinvested by default, though the returns do not beat inflation.
10. Nomination: Investor can nominate a family member (even a minor) so that they can inherit it in the unfortunate event of the investor’s demise.
11. Corpus after maturity: Upon maturity, you will receive the entire maturity value. Since there is no TDS on NSC payouts, the subscriber should pay the applicable tax on it.
12. Premature withdrawal: Generally, one cannot exit the scheme early. However, they accept it in exceptional cases like the death of investor or if there is a court order for it.

4. Tax benefits of NSC investment

Investments of up to Rs.1.5 lakh in the National Savings Certificate can earn the subscriber a tax rebate under Section 80C. Furthermore, the interest earned on the certificates is also added back to the initial investment and qualify for a tax break as well. For instance, if you purchase certificates worth Rs.1,000, you are eligible for a tax rebate on that initial investment amount in the first year. But in the second year, you can claim a tax deduction on the NSC investment(s) that year as well as the interest earned in the first year. This is because the interest is added to the original investment and compounded annually.

5. Comparing NSC with other tax-saving Investments

NSC is one of the tax-saving investment options available under Section 80C of the Income Tax Act. The other popular options are Equity Linked Savings Schemes (ELSS), National Pension System (NPS), Public Provident Fund (PPF) and Tax-saving Fixed Deposits (FD).

Now that you know everything you need to know about NSC, is this scheme for you? If it is fixed income and tax-efficiency you are looking for, you can consider NSC.

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