national-savings-certificate-interest-rate-tax-benefits

National Savings Certificate – Interest Rate, Benefits and Tax Savings

When it comes to investing, there are a lot of options. You can choose investment options that help meet your financial goals. National Savings Certificate or NSC is one such investment option that helps save tax as well.

What is National Savings Certificate?

Launched by the government of India, National Savings Certificate (also known as, NSC) is a fixed-income investment scheme. An Indian Government savings bond, it helps achieve guaranteed returns and is mainly used to accumulate small savings. This investment scheme encourages small to mid-income investors to invest, get returns, and save on taxes under section 80C of the IT Act.

The Indian government has started offering these certificates in 1950’s.

NSC Key Information

Tenure5 years
Minimum Investment AmountRs. 1,000
Interest Rate6.8% per annum (compounded annually)
Tax Benefitu/s 80C of the Income Tax Act, 1961

Who Should Invest in NSC?

Similar to other savings schemes in India like Public Provident Fund, Kisan Vikas Patra, Fixed Deposit, Recurring Deposit, etc., National Savings Certificate offers capital protection of your investment along with guaranteed returns. Investors who are looking for a low-risk and tax saving investment with guaranteed returns, can invest in NSC.

Who Can Invest in NSC?

Eligibility Criteria to Invest in NSC:

  • A single adult (must be an Indian citizen)
  • No age limit for individuals to purchase certificate
  • Joint Account (up to 3 adults)
  • A guardian on behalf of minor or one with unsound mind
  • A minor above 10 years in his own name

Who Cannot Invest in NSC?

This investment scheme is made solely for Indian individuals. Thus, the following people and entities are not allowed to invest in NSC.

  • Hindu Undivided Families (HUF’s)
  • Trusts
  • Private and public limited companies
  • Non-resident Indians (NRI’s)

How You can Buy NSC?

You can buy NSC online through authorized bank. You only need to have a savings account and internet banking with the bank. There is also an option to visit the branch to submit the required documents and fulfilling other requisites for opening an NSC.

Steps to Invest in NSC?

Below mentioned are the steps required to make investment in National Savings Certificate.

  • Completely fill the National Saving Certificate application form
  • Attach self-attested copies with application form
  • Visit branch with the original KYC documents for document verification
  • After documents verification, make payment to start investing in NSC

After payment, don’t forget to take the receipt of your invested amount.

Documents Required

Following are the KYC documents that you will need to submit to purchase an NSC.

  • NSC application form
  • Documents for identification proof including, PAN card, Voter ID, Passport, Driving licence, Senior Citizen ID, or Government ID
  • Address proof such as electricity bill, telephone bill, or bank statement
  • Passport size photographs

Benefits & Features of NSC

Guaranteed Returns

This investment scheme is offering guaranteed returns at the interest rate of 6.8% per annum (revised quarterly). The returns offered from this scheme is usually higher than a bank FD.

Investment Duration

Earlier, the scheme had NSC VIII Issue (5-year tenure) and NSC IX Issue (10-year tenure). After discontinuation of NSC IX Issue, NSC VIII Issue is the only available for investing. So, you can invest for a 5-year NSC.

Amount for Investment

You can start investing from as small as Rs. 100 with no maximum limit.

Loan Collateral

NSC certificates are accepted as collateral for taking loans from banks and NBFCs.

Power of Compounding

Interest earned is compounded annually and reinvested into your NSC investment. It is payable at the time of maturity, i.e., after 5 years of investment.

Nomination

Option to nominate any family member, so the value of the investment can be received to the appointed nominee in the event of death of the investor before maturity.

Premature Withdrawal

Usually, it is not allowed to make premature withdrawal or closure before maturity. However, there are some circumstances when you can withdraw the amount.

  • Upon death of investor in case of a single account
  • Death of any or all the account holders, in case of a joint account
  • On forfeiture by a pledgee
  • On order by court

Tax Benefits on NSC Investment

There is no maximum limit on investing in NSCs, but the investments up to Rs. 1.5 lakh qualify for tax deduction under section 80C of the Income Tax Act, 1961. Moreover, the interest you earn from 1st to 4th year is re-invested and thus, it’s also eligible for tax benefit under the overall limit of Rs. 1.5 lakh tax deduction. However, the interest that you earn during 5th financial year is not re-invested and hence, it is taxable as per applicable tax laws.

Comparison of NSC with other Tax Saving Investments

InvestmentInterest Rate (p.a)Investment DurationRisk Profile
NSC6.8%5 yearsLow risk
PPF7.1%15 yearsLow risk
FD4-6%5 yearsLow risk
NPSMarket-linked returns 10%-12%Till retirementHigh risk
ELSSMarket-linked returns 10%-12%3 yearsHigh risk

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