National Savings Certificate Eligibility and Benefits

National Savings Certificate (NSC)

Here is a comprehensive guide to the National Savings Certificate, detailing its key features, benefits, and procedures.

What is a National Savings Certificate?

The National Savings Certificate (NSC) is a well-known savings and investment plan in India. This Government Savings Bond is perfect for a modest investment, and any Indian citizen can obtain these certificates from their nearest post office branches. It is designed to offer fixed returns to more conservative and risk-averse investors.

Investments in National Savings Certificates work differently in comparison to regular savings plans. They entail a short-term and one-time financial outlay, with the Government fixing the returns from the same. Once you invest in an NSC, no additional investments can be made into the same certificate. However, you can purchase new certificates from your nearest post office. The interest rate on an NSC remains constant for its entire term, with interest compounded annually. When calculating interest for subsequent years, the interest earned in a given year is added to the principal amount. Furthermore, you can choose to receive tax exemption on interest earned under Section 80C, which will raise the net return even more.

Features and Benefits of NSC

Here are some key features and benefits of the National Savings Certificate:

Fixed Income

NSC offers a guaranteed return of 7.7%, which is higher than many fixed deposits. This fixed return provides significant financial security to the investors.

National Savings Certificate Types

Initially, NSC VIII Issue and NSC IX Issue were the two types of certifications. However, the NSC IX Issue was discontinued in December 2015, leaving only the NSC VIII Issue available for subscription.

Tax Savings

Another one of the National Savings Certificate benefits is handsome tax savings. You are eligible to receive up to Rs. 1.5 lakh as tax deductions on your investment under Section 80C of the Income Tax Act, 1961.

Investment Flexibility

If you want to invest in the National Saving Certificate, you can make an initial commitment of as little as Rs. 1,000 (or multiples of Rs. 100) and increase it as needed.

Interest Rate

The government revises the fixed interest rate on the certificates every quarter. For Q1 FY 2024–2025, the interest rate is 7.7% per annum. Annual compounding is required, but payment is due at maturity.

Maturity period

The NSC Maturity period is either five years or ten years. Investors can choose based on their preferences.

Accessible

NSCs can be easily purchased from any post office by duly submitting the necessary KYC documentation. Furthermore, the certificate can be easily transferred across POs and between individuals without affecting the original certificate's interest accrual or maturity.

Loan security

You can use National Savings Certificates (NSC) as security to get loans. Banks and NBFCs accept NSC as security or collateral, with the certificate transferred to the bank and stamped by the postmaster.

Power of Compounding

Interest is paid at the certificate's maturity, but it is compounded annually. Because of compound interest, the returns are reinvested automatically. All post offices offer the same interest rates because the Government of India supports the program.

Nomination

Investors can nominate a family member, including minors, to inherit the proceeds at maturity in the event of their passing.

Corpus After Maturity

At maturity, the investor will get the whole corpus value. The subscriber should pay the relevant tax while submitting his income tax returns or paying his advance tax since there is no TDS on NSC payouts.

Premature Withdrawal

National Savings Certificates have a five-year lock-in term, and investors cannot withdraw any money during this period. However, a premature withdrawal is permitted in some extraordinary circumstances.

What are the Tax Benefits of National Savings Certificate Investments?

NSC investments qualify for tax deductions under Section 80C, up to Rs. 1.5 lakh. You may deduct the amount paid for the same while calculating your tax liabilities. Interest earned on NSC will be taxable under the "Income from Other Sources" head. However, interest is reinvested for the first four years, making it deductible under Section 80C.

The investor will own the interest earned in the fifth year and the maturity amount. Hence, this will now be taxable based on the investor’s tax slab and income.

What are the Eligibility Criteria for a National Savings Certificate?

The National Savings Certificate eligibility depends on a few factors. The main requirements for being eligible to invest using National Savings Certificates are as follows:

• NSC investments are open to all Indian residents.
• Investments in NSCs can be made by adults alone, jointly (up to three people), guardians acting on behalf of minors or individuals of unsound mind, or minors over the age of ten.
• New NSCs cannot be obtained by non-resident Indians. Nonetheless, resident NSC subscribers may keep their NSCs until they mature (if they become NRIs before the certificates mature).
• NSC investments cannot be made by trusts or Hindu Undivided Families (HUFs).

Who Should Invest in National Saving Certificate?

Investing in NSC is a secure option for anybody seeking to reduce their tax liability and get a consistent rate of return on their investment. NSC provides total capital protection together with interest guarantees. However, like other fixed-income plans, it cannot fully overcome inflation, with returns comparable to those of the National Pension System and tax-advantaged mutual funds.

Basically, an investor who finds the following opportunities may want to invest:

• a predictable income stream that is paid out on a monthly, quarterly, or annual basis
• low risk
• guaranteed interest rate
• tax savings

In addition to the aforementioned advantages, the programme includes a few drawbacks, such as lower interest rates and no inflation adjustment. It does not offer returns that keep up with inflation, in contrast to the National Pension System and tax-saving mutual funds.

That is entirely dependent on the investor's financial objectives, however. The government has done everything it can to make the plan investor-accessible. It is available at all post offices and requires a simple registration procedure.

How to invest in National Saving Certificate?

Earlier, post offices or banks would distribute physical NSC certificates. As of 2016, this has ceased. Now, certificates can be purchased electronically (e-mode) or through the Passbook mode. Unlike the considerably more arduous passbook system, you can quickly buy an NSC certificate using a savings account at an authorised bank or post office.

To make an offline investment in NSC, you can follow the steps listed below:

• Step 1: Get the NSC application form from any post office or online.
• Step 2: Fill in all your details.
• Step 3: Submit the form and copies of the required KYC paperwork that have been self-attested.
• Step 4: Bring the original paperwork for verification.
• Step 5: Pay the investment amount in cash or by cheque.
• Step 6: Pick up the NSC certificate upon approval.

The following are the steps to apply online for NSC:

• Step 1: Access and login to the Department of Posts (DOP) online banking account.
• Step 2: Select the 'Service Requests' option located under the 'General Services' section.
• Step 3: Click "NSC Account - Open an NSC Account (For NSC)" after clicking on "New Requests."
• Step 4: Choose the debit account that is connected to the PO savings account and enter the deposit amount.
• Step 5: Click on "Click Here" to read and agree to the terms and conditions.
• Step 6: Click "Submit" after entering the transaction password.
• Step 7: You will be able to see and download the deposit receipt.
• Step 8: Sign in to view the specifics of your NSC account by going to the 'Accounts' section.

Documents Required to Apply for NSC

Here are the documents required to apply for NSC certificates:

• A completed NSC Application form
• Your current photograph
• Identity proof: PAN, Aadhaar card, etc.
• Address proof: Voter ID, Aadhaar card, etc.
• Investment amount in cash or by cheque.

Any India Post office will accept these papers for submission in order to acquire NSC certificates in the appropriate denominations.

How to request a duplicate National Savings Certificate

You can ask for a duplicate NSC certificate if your original is misplaced, stolen, damaged, destroyed, or altered.

To replace the NSC, just complete the Duplicate Savings Certificates form and mail it back to the post office that issued it.

The following are the form's essential fields:

• Details regarding the certificate(s), such as serial numbers, NSC issue, denominations, and so on.
• The purchase date of the certificates.

The reason for requesting a duplicate certificate must be included along with additional details.

How to Withdraw NSC Investments?

Following the National Savings Certificate withdrawal guidelines, NSC investments cannot be removed prior to the maturity term, which could be five or ten years. If the full deposit amount is withdrawn within a year, no interest will be paid, and the certificate holder will be required to pay a penalty.

However, the following situations permit early withdrawal:

• The certificate bearer passes away.
• Forfeiture by a government officer.
• Should a court of law mandate it, the full sum invested may be withdrawn.

The following documents must be filed in accordance with the withdrawal regulations. The certificate holder must submit the following paperwork in order to withdraw:

1. The authentic NSC certification
2. The paperwork for NSC encashment
3. Identity verification
4. The guardian's attestation if the transaction was made on behalf of a child
5. The nominee may withdraw the full amount invested in the event of the NSC certificate holder's death by presenting Annexure 1 (registered at a post office) and Annexure 2 as supporting documentation.

What is the Transfer policy for the National Savings Certificate

It is possible to move NSC across post offices. It can also be passed on to another person.

Comparing NSC with other tax-saving Investments

One of the tax-saving options under Section 80C of the Income Tax Act, the National Savings Certificate, is one of the best savings plans in India. It offers guaranteed returns based on the government-fixed interest rate for the National Savings Scheme.

Here is a quick comparison between NSC and other comparable savings and investment plans:

FAQs on National Savings Certificate (NSC)

What is NSC?

The National Savings Certificate, or NSC, is one of the most popular personal savings and investment plans in India.

How to buy NSC?

One can invest in National Savings Certificates by opening a savings account at the post office. After that, you need to activate your account's Net Banking services. Thereafter, the following banking portal may be used to acquire National Savings Certificates.

How to buy NSC online?

Go to the "Services" link under General Services on India Post's official website to register an NSC account online. Select "New Requests" from this menu and then select "NSC Account-Open NSC account". Enter the desired amount and link a savings account to begin investing.

How to show NSC interest in income tax?

Only in the last year of the investment, when the money is not reinvested, is the interest generated from a National Savings Certificate (NSC) taxable. Therefore, if you have made an investment in a 5-year NSC, the interest generated during the first 4 years is to be included in your Income Tax Return (ITR) as a tax-saving investment under Section 80C.

How to calculate NSC interest?

The government sets the interest rate, which can range between 6.80-7.70%. NSC interest can be computed manually or with the help of online NSC calculators.

How to Encash/Redeem NSC certificates after maturity?

To cash your NSC certificates after maturity, visit the post office branch and provide valid identification and a filled-out Form 2.

Which is better? NSC or PPF?

These two government-sponsored programs have gained immense popularity over the years. Although their features may vary, both offer tax benefits and guaranteed returns. They are both beneficial for investors looking for secure options with negligible or zero risks.

Is NSC Interest Taxable?

Interest earned on NSC is taxable under the “Income from Other Sources” head.