National Savings Certificate
National Savings Certificate
When it comes to creating a sizeable savings fund, you cannot depend on controlling your expenses. You need another source of income. The other source of income we are talking about is investing in a savings scheme that can offer you returns and help you grow your savings fund.
One such saving option is the National Savings Certificate. We’ll be telling you all about National Savings Certificate here.
What is NSC?
NSC stands for National Savings Certificate. National Savings Certificate is a savings cum investment scheme that can be set up through a post office. It is a Government Savings Bond ideal for making a small investment. These certificates can be purchased by any Indian resident from any post office branch across India. It is a government-backed scheme designed to offer fixed returns to conservative investors.
Investment in National Savings Certificate works differently from other savings schemes. This involves an initial short-term investment. This short-term investment earns a return at a rate fixed by the government. Once the investment is made in the certificate, the interest for the year is credited to your investment, restricting you to invest more in the certificate. However, it is possible to invest the amount in another certificate which can be bought from any post office. The NSC interest rate will remain fixed for the tenure of the certificate and is equal to that offered at the time of purchase.
The interest is compounded annually. This means that the interest earned in a year is added to the principal amount for the calculation of interest for the coming years. In addition to that, you have the option of availing tax exemption on interest earned under Section 80C, further increasing the net return from the investment.
Investment in National Savings Certificate works differently from other savings schemes. This involves an initial short-term investment. This short-term investment earns a return at a rate fixed by the government. Once the investment is made in the certificate, the interest for the year is credited to your investment, restricting you to invest more in the certificate. However, it is possible to invest the amount in another certificate which can be bought from any post office. The NSC interest rate will remain fixed for the tenure of the certificate and is equal to that offered at the time of purchase.
The interest is compounded annually. This means that the interest earned in a year is added to the principal amount for the calculation of interest for the coming years. In addition to that, you have the option of availing tax exemption on interest earned under Section 80C, further increasing the net return from the investment.
Features & Benefits of National Savings Certificate
The National Savings certificate comes with a plethora of features to make it a highly preferred savings instrument. These features are:
· Fixed income
National Savings Certificate was designed to provide investors with security. This financial security comes in form of fixed returns that the scheme provides.
· Tax Saving Option
The scheme is a popular tax saving instrument as it allows investors to claim up to Rs 1.5 lakh u/s 80C of the Income Tax Act, 1961.
· Minimum Investment
Investors can start investing in National Savings Certificate with a minimum investment of INR 1,000 (or multiples of Rs 100) as an initial investment and then increase the amount gradually.
· NSC Interest rate
National Savings Certificate offers the investors a fixed income. This fixed income is determined by the rate of interest fixed by the government. The rate is revised every quarter and gets compounded annually but is payable only at maturity.
· Maturity Period
The maturity period of the National Savings Certificate is 5 years.
· Loan Collateral
National Savings Certificate can be put as collateral to secure loans.
· Nomination
This feature allows the investor to nominate a family member who can withdraw the fund balance in case of the unfortunate demise of the account holder.
· Withdrawal Upon Maturity
Upon maturity, the investor will receive the entire maturity value.
· Premature Withdrawal
National Savings Certificate has a lock-in period of 5 years, before which the account cannot withdraw funds. However, in case of some exceptional instances, a premature withdrawal may be allowed.
NSC interest rate - Historic and Current
The interest rate for National Savings Certificate gets revised every now and then. This has been the trend of NSC interest rate:
Year |
Rate of Interest |
1.4.2020 to 31.03.2022 |
6.80 |
1.07.2019 to 31.03.2020 |
7.90 |
1.1.2019 to 30.6.2019 |
8.00 |
1.10.2018 to 31.12.2018 |
8.00 |
1.1.2018 to 30.9.2018 |
7.60 |
1.7.2017 to 31.12.2017 |
7.80 |
1.4.2017 to 30.6.2017 |
7.90 |
Tax benefits of National Savings Certificate investment
National Savings Certificate is a popular tax-saving instrument. Investors can claim a tax deduction of up to INR 1,50,000 under Section 80C of the Income Tax Act. In addition to that, the interest earned on the investment is also credited back to the principal investment and qualifies for a tax exemption as well.
Tax benefits of National Savings Certificate investment
National Savings Certificate is a popular tax-saving instrument. Investors can claim a tax deduction of up to INR 1,50,000 under Section 80C of the Income Tax Act. In addition to that, the interest earned on the investment is also credited back to the principal investment and qualifies for a tax exemption as well.
Documents Required for NSC Investment
Investment in National Savings Certificate requires submission of the following documents:
- Filled form of application form for the National Savings Certificate Application.
- Address proof, including Passport and Aadhar card.
- ID proof such as PAN Card, Aadhaar Card, Driving License, etc.
- Passport-sized photographs.
- Cash or Cheque for the amount to be deposited by the investor.
Comparing NSC with other Tax-Saving Investments
National Savings Certificate is one of the many tax-saving options available under Section 80C of the Income Tax Act. This saving scheme is one of the few that offer fixed returns according to the National Savings Scheme interest rate fixed by the government. Here’s a brief comparison of NSC with other such similar savings cum investment schemes:
Saving Scheme |
Rate of Interest |
Nature of Risk |
National Savings Certificate (NSC) |
6.80% |
Low-risk |
Public Provident Fund (PPF) |
7.1% |
Low-Risk |
National Pension Scheme (NPS) |
9-12% (Variable – Market-linked) |
Market-Linked Returns |
Fixed Deposit (FD) |
Fixed depending on bank/NBFC |
Low-Risk |
Frequently Asked Questions
Q1. How to buy NSC?
Investment in National Savings Certificate can be made by opening up a savings account in the post office. Following that, you have to get Net Banking Services Activated for your account. Once that is done, National Savings Certificate can be purchased through the next banking portal.
National Savings Certificate can also be bought from public sector banks, a few authorized private banks, and a post office. However, if you are buying NSC from the post office, it is to be noted that the post-office issued printed National Savings Certificates issued from the post are now discontinued.
Q2. How to show NSC interest in income tax?
The interest earned from the investment made in National Savings Certificate (NSC) is taxable only in the final year when the earned interest is not reinvested. Therefore, if you have made an investment in a 5 year NSC, the interest earned during the first 4 years is to be included in your Income Tax Return (ITR) as a tax-saving investment u/s 80C. The NSC interest earned in the final year. i.e., 5th year is taxable, hence it is to be included in the taxable income mentioned in your ITR under the head “Income from Other Sources”. The NSC interest income is subsequently taxed according to the applicable slab rate.
Q3. NSC comes under which section?
The NSC tax benefits that come under Section 80C are included in the Income Tax Act, of 1961.
Q4. How to open NSC in the Post Office?
The NSC post office account can be opened by visiting the nearest Post office branch. You need to submit Form 1, along with self-attested documents, and pay in form of cash, check or DD. After the successful verification of these documents, your NSC account will be opened in the Post office.
Q5. How to calculate NSC interest?
The National Saving Certificate interest rate is determined by the government. As of now, the NSC interest rate stands at 6.80%. You can calculate NSC interest manually or use the NSC calculators available online.
Q6. How to encash/redeem NSC certificates after maturity?
You need to visit the post-office branch to encash your NSC certificates after maturity. You would be required to submit valid ID proof for the same and a dully-filled form 2.
You can also do it online if you wish to redeem your e-NSC certificate. This would require you to log into your Internet Banking account that was used to purchase NSC certificate. Following that, you can make a request for redemption of your e-NSC certificate. The amount will be credited to your linked savings account once the process is completed.
Sources:
https://www.etmoney.com/income-tax-saving/national-savings-certificate
https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=90
https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=167
https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=182
https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=178
https://www.etmoney.com/pension/nps-interest-rate
https://www.etmoney.com/income-tax-saving/national-savings-certificate
https://www.etmoney.com/income-tax-saving/national-savings-certificate
https://www.etmoney.com/income-tax-saving/nsc-interest-rate#:~:text=PPF%20is%20better%20than%20NSC,than%20the%20interest%20rate%20offered.
https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=38
ARN No: PCP/NSC/030123
