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National Savings Certificate – Interest Rates and Tax Savings
A Government of India initiative, the National Savings Certificate is a fixed income investment scheme that you can open easily with any post office. It is a savings bond scheme that encourages subscribers primarily small to mid-income investors to invest while saving on income tax under Section 80C
Who Should Invest in NSC?
The NSC offers guaranteed interest and complete capital protection, just like some other fixed income instruments – Public Provident Fund and Post Office FDs. However, they cannot deliver inflation-beating returns like tax saving Mutual Funds and National Pension Systems. Basically, the Government has promoted National Savings Certificate as a savings scheme for Indian individual citizens. Hence, below are not allowed to invest in NSCs
- Hindu Undivided Families (HUFs)
- Private and public limited companies
- non-resident Indians (NRIs)
How & Where can you buy it?
Earlier, physically pre-printed NSC certificates were issued by banks or Post Offices. However, the same has been discontinued w.e.f 01-July-2016. Presently, the certificates can be,
- Recorded in two modes namely e-mode (electronic mode) or in Passbook mode.
- Purchased from all Public Sector Banks and top three Private Banks (ICICI, HDFC & Axis)
If you have a Savings account with Bank/Post office, you can buy NSC certificates in e-mode, provided you have access to internet banking. It can be bought by an investor for self or on behalf of minor or with another adult as a joint account.
Documents Required for NSC
Below are the documents required to be submitted in order to invest in an NSC:
- The NSC application form.
- Investors to provide an original identification proof such
- Permanent Account Number (PAN) Card
- Voter ID
- Driving licence
- Senior Citizen ID, or Government ID for verification.
- Address proof like electricity bill, Passport, telephone bill,, bank statement along with a cheque.
Features & Benefits of NSC
- Interest Rates : The certificates earn an annual fixed interest, which is currently at a rate of 7.9% per annum (revised every quarter by the government), thus guaranteeing a regular income for the investor.
- Maturity period : The scheme originally had two types of certificates – NSC VIII Issue (5 year tenure) and NSC IX Issue (10 year tenure). With the discontinuation of the latter one in December 2015, only the former issue is available for subscription.
- Tax saver: As a government-backed tax-saving scheme, the principal invested in NSC qualifies for tax savings under under Section 80C of the Income Tax Act up to Rs. 1.5 lakhs annually.
- Investment Flexibility : You can invest as small as Rs. 100 as an initial investment with no maximum limit.
- Accessible: It can be easily bought from any post office on submission of required KYC documents. Also, it is easy to transfer the certificate from one PO to another as well as from one person to another without impacting interest accrual/maturity of the original certificate.
- Loan collateral’s :NSC certificates are accepted as collateral or security for secured loans in Banks and NBFCs. In such a case, a transfer stamp is put on the certificate and transferred to the bank while disbursing loans
- Power of compounding: Interest earned gets compounded annually and reinvested by default but will be payable only at maturity.
- Nomination: Investor can nominate any family member (even a minor) so that they can inherit it in the case of an unfortunate event of the investor’s demise.
- Corpus on maturity: The investor will receive the entire corpus value on maturity. As there is no TDS on NSC payouts, the subscriber should pay the applicable tax on it while filing his Income tax returns or paying his advance tax.
- Premature withdrawal: Generally, one cannot exit the scheme early except on the death of investor, or on a court order, or on forfeiture by a pledgee who is a Gazetted Government Officer for it.
Tax benefits for NSC investment
Though there is no maximum limit on the purchase of NSCs, but only investments of up to Rs 1.5 lakh annually can earn the subscriber the tax savings under Section 80C of the Income Tax Act, 1961. Additionally, the interest earned on the certificates annually, for the 1st 4 years are deemed to be reinvested ( ie. added back to the initial investment) and hence, also eligible for a tax break, subject to the overall annual limit of 1.5 lakh. However, the interest earned in the 5th year is not re-invested hence taxable as per the investor’s applicable slab rate.
Comparing NSC with other Tax-Saving Investments
NSC is one of the tax-saving investment options which is available under Section 80C of the Income Tax Act. The other options are Equity Linked Savings Schemes (ELSS), National Pension System (NPS), Fixed deposits , Life Insurance Policy and Public Provident Fund (PPF). Lets understand how these tax-saving investments compare with each other:
|Investment||Interest||Lock-in Period||Risk Profile|
|ELSS funds||12% to 15%||3 years||Market-related risks|
|NPS||12% to 14%||Till retirement||Market-related risks|
|FD||7% to 9%||5 years||Low-risk|
Now that you know all about NSC and its benefits , you can most definitely say that this secure and low-risk product is for the risk- averse investors. Those who seek safety of capital or investors who are looking to diversify their portfolio through fixed return instrument then this is the scheme for you to invest.