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There are plenty of options available when it comes to investments. You can choose any as per your financial goals. National Savings Certificate or NSC, a post office savings product, is a popular option. As a low-risk investment, it comes with a host of benefits. We have covered the following in this article:
The National Savings Certificate (NSC) is a fixed income investment scheme that you can open with any post office branch. The scheme is 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 low-risk fixed-income product. You can buy it from the nearest post office in your name, for a minor or with another adult as a joint account. NSC comes 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. The interest rate is revised on a regular basis by the government.
Anyone looking for a safe investment avenue to earn a steady interest while saving on taxes can choose to invest in NSC. 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 office branches spread across the country.
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 resident citizens.
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.
NSC is one of the tax-saving investment options available under Section 80C of the Income Tax Act, 1961. The other popular options are Equity Linked Savings Schemes (ELSS), National Pension System (NPS), Public Provident Fund (PPF) and Tax-sSaving Fixed Deposits (FD). The table below compares NSC with other tax-saving investments:
| Investment | Interest | Lock-in Period | Risk Profile |
| NSC | 6.8% p.a. | 5 years | Low-risk |
| ELSS funds | Market-linked, historical returns show 12% to 15% p.a. | 3 years | Market-related risks |
| PPF | 7.1% p.a. | 15 years | Low-risk |
| NPS | Market-linked, historical returns show 8% to 10% p.a. | Till retirement | Market-related risks |
| FD | 4% to 6% p.a. | 5 years | Low-risk |
Now that you have some knowledge of NSC, is this scheme for you? If you are looking for capital protection and tax deductions under Section 80C, you can consider investing in NSC.
NSC, i.e. National Savings Certificate, is a fixed-income investment scheme backed by the government of India. The savings bond is suitable for small and medium-income investors to save tax while earning returns. This is a secure and low-risk product.
As of today, you cannot subscribe to NSC online. You will be required to visit the nearest Post Office to fill out the NSC application form and submit it to the executive in order to open an NSC account.
Step 1: Visit the nearest Post Office branch and submit the duly filled NSC application form.
Step 2: Attach self-attested copies of the documents and proofs as required by the Post Office. Carry the original documents as well for verification.
Step 3: Make the payment of your investment in the form of cash, cheque, or demand draft.
Step 4: Upon processing your application, an acknowledgement of the same will be provided marking the initiation of your NSC account.
You can show the NSC interest earned in one of the following ways while filing ITR:
It is important that you stick to one of the methods mentioned above throughout the NSC tenure. Experts prefer that you choose Method 1 as the interest and income will be distributed throughout the tenure and does not accumulate to the last year.
The money you invest into NSC gets income tax deduction under Section 80C of the Income Tax Act, 1961.
There are a lot of differences in the working and objectives of the two schemes—National Savings certificate (NSC) and Kisan Vikas Patra (KVP). To make this difference evident, here is a comparison table.
| Parameters | NSC | KVP |
| Eligibility | Resident Indians only | Only Resident Indians and Trusts |
| Minimum Deposit Amount | Rs.100 | Rs.1,000 |
| Maximum Deposit Amount | No limit | No limit |
| Interest Rate (Q2 of FY 2021-22) | 6.8% p.a. | 6.9% p.a. |
| Investment Tenure | 5 years | 124 months (Q4 of FY 2020-21) |
| Premature Withdrawal | Not allowed | Only after 30 months from the date of investment |
| Tax Benefits | Available | Not Available |
| Loan Facility | Available | Available |
| How to Subscribe | At Post Office branches | At Post Office and participating bank branches |
You must know that the interest on NSC is compounded on a yearly basis. That is the interest you calculate on the principal amount invested in NSC should be added to the principal amount to get the principal amount for the second year.
You can calculate interest using our simple and compound interest calculator.
Upon maturity, the NSC can be encashed at any Post Office branch and not necessarily at the branch where the account is held. If you want to withdraw the money from a branch that is not your account’s home branch, you will have to submit an application with details, such as serial number, issue date, full name, registered and current address.
When you want to encash the maturity amount, you have to carry the following documents with you:
Both these government-backed schemes are famous for years now. Though both these options come with minimal risk, they both have their own benefits and drawbacks. You can choose between the two based on your investment objectives.
| Parameter | NSC | PPF |
| Account Type | Single or Joint | Single only |
| Tenure | 5 years | 15 years |
| Interest Rate | 6.8% p.a. | 7.1% p.a. |
| Number of Accounts | Multiple accounts can be opened with a maximum deposit of Rs.10,000 per certificate | Only one PPF account per person. Exception: You can open an account for your child and be a joint account holder for it. |
| Contributor | Self, joint account holder, or guardian in the case of a minor | Self or parent of the minor |
| Tax Benefits | Principal is tax-free up to Rs.1.5 lakh per financial year u/s 80C; the interest is taxable | Principal is tax-free up to Rs.1.5 lakh per financial year u/s 80C; the interest and maturity amount is tax-free as well |
| Withdrawal | Visit the Post Office branch to withdraw or encash the NSC account balance. In case you are sending a representative, provide a signed letter to authorise the representative to withdraw the money. | Visit the bank or Post Office branch to withdraw. Or, visit the NSI India website to download Form C or its equivalent to apply for withdrawal. |
NSC will take about 10.5 years to double your investment at the current interest rate of 6.8% p.a.
When you submit the application form to open the NSC account along with the KYC documents, you will have to make the payment towards the same. Once this is processed, the Post Office branch will provide you with the NSC certificate.
You have to opt for the online passbook service for NSC account by informing the Post Office branch regarding the same. The executives will give you the internet banking credentials to be used. Then, you can log into the account to view all the transaction details on your NSC account. This facility is available only at the select branches of Post Office.
Both ULIP and NSC provide income tax deductions on the principal invested in them under Section 80C.
In order to transfer the NSC account from one Post Office branch to another, you have to submit an application at the old branch or the new branch. Further, the application must have the signatures of all the account holders in the case of Joint A or B account type.
Step 1: Fill up the application form with the relevant information, such as the Post Office branch name, your savings account number held with Post Office, and applicant’s name.
Step 2: Paste the applicants’ photograph, and select the account you would like to open, i.e. ‘NSC VIIIth issue’ from the options.
Step 3: Select the account holder type and account type from the available options.
Step 4: In the case of ‘Minor through Guardian’, fill up the details of the minor in the table 1.
Step 5: Specify the amount you would like to deposit to open the account in figures and words. IF providing cheque or DD, please write the serial number and date on it.
Step 6: Now, provide all the personal and contact details of the applicants in the table 2.
Step 7: All the applicants must add their signatures at the end of the page along with their names.
Step 8: Next, skip to the ‘Nomination’ section and enter the applicants’ names and the nominee’s name. In the table provided, provide details, such as the applicant’s relationship with the nominee, nominee’s full address, Aadhaar number, and others.
Step 9: In the case of illiterate applicants, add signatures of two witnesses for the same along with the applicants’ signatures. That’s it!
The NSC certificate number will be provided right on the certificate. It is recommended that you note this certificate number somewhere so that you can apply for a duplicate certificate by quoting this number in case your original certificate is lost/stolen.
NSC comes with a lock-in period of 5 years, i.e. it cannot be withdrawn before maturity. As exemption, NSC can be prematurely withdrawn only in the following circumstances:
While both NSC and KVP are offered as small savings schemes, the way the two schemes work are different. NSC provides income tax benefits, but KVP does not. The below table provides a comparison of the two schemes.
| Parameter | NSC | KVP |
| Special Feature | Stable and guaranteed savings scheme that provides high returns | Invested amount doubles on maturity |
| Minimum Amount to Open the Account | Rs.1,000 | Rs.1,000 |
| Maximum Limit | None | None |
| Interest Rate | 6.8% p.a. (Q2 of FY 2021-22); compounded annually | 6.9% p.a. (Q2 of FY 2021-22); compounded annually |
| Tenure | 5 years | 124 months (Q2 of FY 2021-22) |
| Premature Closure | Not allowed | Allowed after 2 years and 6 months from the date of opening the account |
| Tax Benefits | Tax deduction can be claimed u/s 80C of the Income Tax Act | Not available |
Though both NSC and 5-year FDs have a tenure of five years and offer income tax deduction u/s 80C, there are quite a few things that are different. If you are confused on which product to choose to save taxes, refer to the below table before deciding:
| Parameter | NSC | FD |
| TDS deduction | No deduction upon maturity | TDS deducted upon maturity |
| Collateral facility | Can be used | Cannot be used |
| Interest Compounding Frequency | Once a year | Once every quarter |
| Interest Rate | 6.8% p.a. (Q2 of FY 2021-22) | 5%-7.25% p.a. (varies from bank to bank) |
The minimum amount required to open a NSC account is Rs.1,000. If you want to deposit a higher amount, you can do so in the multiples of Rs.100. There is no maximum limit for the amount you deposit.
Request your bank or Post Office to provide the login credentials such that you can access your NSC account details online.
You can link Aadhaar to any Post Office Saving Schemes either online or offline. Here is how you can do it online:
Earlier, NSC came in two variants—NSC VIII and NSC XI. The former came with a tenure of 5 years and the latter with that of 10 years. However, the latter variant is discontinued. Therefore, it is only NSC VIII issue with a 5-year tenure that is available for subscription currently.
Step 1: Fill in your details on Form NC41, get the signatures of the pledger and pledgee, and submit it to the Post Office branch.
Step 2: Attach the original certificate with the application form while submitting it to the Post Office branch.
Step 3: You can pledge the NSC certificate only to:
Step 4: The PostMaster will endorse ‘Transferred Security to’ written on the certificate in red with date and signature upon processing your application. Fees may be charged for the same.
NSC VIII issue that is currently available for subscription comes with a tenure of five years.
Step 1: Apply for internet banking at your Post Office or bank. Once it is approved, you can access your NSC account online.
Step 2: There will not be any serial numbers anymore. Instead, an account number will be issued.
Since everything has been upgraded to online banking since 2016, there are less possibilities of you getting scammed over NSC investment.
| Parameter | NSC | LIC |
| Objective | Small savings with returns | Life cover with sum assured |
| Payment Frequency | One-time lump sum payment | Premiums can be paid in monthly, quarterly, yearly intervals |
| Tax Benefits | Capital invested gets income tax deduction u/s 80C | Capital, interest earned, and maturity amount are exempt from tax |
| Sub-categories | None as of now | Many different life insurance schemes are available |
