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National Savings Certificate (NSC)

by | Jun 19, 2024 | Income Tax | 0 comments

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Important keyword: Income Tax, NSC, optimized, Tax Savings & Deductions.

National Savings Certificate (NSC)

The National Savings Certificate (NSC) is a trusted investment option offered by the Government of India through post offices, aimed at encouraging savings among individuals. It provides a secure and stable way to invest for the long term, guaranteeing a fixed return rate over a specified period. This makes it particularly appealing for cautious investors seeking steady growth and tax benefits. National Savings Certificate stands out as a reliable choice, ensuring both financial security and opportunities for tax savings, thus serving as an excellent option for risk-averse individuals looking to build their savings.

What is a National Saving Certificate?

The National Savings Certificate (NSC) is a savings scheme designed to attract small and mid-income investors by offering tax benefits under Section 80C of the Income Tax Act. Investors commit their funds for a fixed period of 5 years, during which they benefit from a risk-free return on their investment. The current NSC interest rate stands at 7.7% per annum, subject to periodic revisions by the government. This makes NSC a reliable option for investors looking to grow their savings steadily while also enjoying tax advantages.

Let’s Summarize the NSC scheme in the below table:

Minimum InvestmentINR 1000
Lock-in Period5 years
NSC Interest Rate7.7% p.a.
Risk ProfileLow Risk
Tax BenefitsDeduction up to INR 1.5 lakhs u/s 80C

What are the Features of National Savings Certificate?

The National Savings Certificate (NSC) offers a flexible investment opportunity with several key features:

Minimum and Maximum Investment: There is no upper limit for investment in NSC. The minimum investment amount starts at INR 1,000, or multiples of INR 100 thereafter. Investors have the flexibility to increase their investment as per their convenience.

Access to the Certificate: National Savings Certificate can be purchased from any Post Office after completing the KYC verification process. The certificate is transferable between Post Offices or individuals without affecting its validity.

Lock-in Period: The maturity period for National Savings Certificate is fixed at 5 years.

Premature Withdrawal: Withdrawal before maturity is permitted only in exceptional circumstances such as the investor’s demise or a court order.

Power of Compounding: Interest earned on NSC is compounded annually and reinvested automatically. The accumulated amount, including principal and compounded interest, is payable at maturity.

Nomination Facility: Investors can nominate family members, including minors, to inherit the NSC in case of unforeseen events like the investor’s demise.

TDS Applicability: No TDS (Tax Deducted at Source) is deducted on NSC payouts. However, investors are liable to pay taxes on the interest earned while filing their Income Tax Returns (ITR).

Loan Collateral: NSC certificates can be used as collateral security to obtain loans from banks or NBFCs. The process involves transferring the certificate to the lending institution, which stamps the transfer for security purposes.

Physical and E-Certificate: Effective from April 1, 2016, NSC is available only in electronic form (e-mode). Existing physical certificates are no longer issued.

Transfer of Certificate: Transfer of NSC certificates from one person to another is allowed only once, from the date of issue to the date of maturity.

Types of NSC

The National Savings Certificate (NSC) offers a structured savings avenue with specific guidelines and benefits:

Types of NSC Certificates: Initially, the NSC scheme included two types: NSC VIII with a 5-year lock-in period and NSC IX with a 10-year lock-in period. However, effective December 20, 2015, NSC IX was discontinued. Currently, only NSC VIII, with a 5-year lock-in period, is available for investors.

Eligibility Criteria: The NSC scheme is exclusively designed for residential individuals. Non-resident Indians (NRIs), Hindu Undivided Families (HUFs), trusts, and other entities are not eligible to invest in NSC.

Investment Objective: NSC appeals to individuals seeking capital protection and a guaranteed return. Interested investors can purchase NSC certificates at any post office, provided they comply with KYC norms.

Tax Benefits: Investments in NSC up to INR 1,50,000 annually qualify for tax deduction under Section 80C of the Income Tax Act. Interest accrued in the first four years is automatically reinvested, qualifying for fresh deductions under Section 80C. However, interest received at maturity (in the fifth year) is taxable according to the investor’s applicable income tax slab.

Documents Required for Purchase: To buy NSC, individuals must submit an NSC application form along with identity proof (such as PAN Card, Aadhar Card, Senior Citizen ID, or Voter ID), address proof (like Electricity Bill, Passport, Telephone Bill, etc.), bank statement with a cheque, and passport-size photographs.

Modes of Investment: Previously, NSC certificates were pre-printed by banks and post offices, but this practice has been discontinued. Currently, investors can opt for:

  • Electronic Mode (e-mode): Available to individuals holding a bank or post office savings account with internet banking facilities.
  • Passbook Mode: Certificates are recorded in a passbook or printed e-mode format, akin to a bank passbook.

What is the Premature Withdrawal Procedure of NSC?

Although the National Savings Certificate (NSC) typically has a lock-in period of 5 years, it does allow for premature withdrawals under specific circumstances:

  1. Death of the Holder(s): If the investor passes away, or in the case of joint holders, the certificate can be withdrawn prematurely.
  2. Court Order: Withdrawal can be permitted if mandated by a court of law.
  3. Forfeiture by Gazetted Government Officer: If a Gazetted Government Officer orders forfeiture of the certificate, premature withdrawal may be allowed.

It’s important to note that withdrawing NSC certificates before completing 1 year results in receiving only the principal amount; no interest is paid. However, if withdrawn after 1 year, the investor receives the principal amount along with the accrued interest.

For the withdrawal process, the following documents are required:

  • NSC Original Certificate
  • NSC Encashment Form
  • Proof of identity
  • Nominee’s signature on the certificate (compulsory for minors, attested by a guardian)
  • In the absence of a nominee, the legal heir can opt for encashment using Form SB84.

In the event of the investor’s demise, the nominee can encash the certificate by submitting specific forms:

  • Annexure 1: Claim settlement application (registered at a post office)
  • Annexure 2: Claim settlement application (legal evidence)

Comparison with other Tax Saving Schemes

InvestmentInterest p.a.Lock-in PeriodRisk Profile
NSC7.7%
(guaranteed)
5 yearsLow
NPS8% to 10%
(expected)
Till retirementMarket-related risks
ELSS12% to 15%
(expected)
3 yearsMarket-related risks
PPF7.1%
(guaranteed)
15 yearsLow
FD4% to 8%
(guaranteed)
5 yearsLow

Read More: Tax Saving FD (Fixed Deposit) – Features and Eligibility

Web Stories: Tax Saving FD (Fixed Deposit) – Features and Eligibility

Official Income Tax Return filing website: https://incometaxindia.gov.in/

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