The National Savings Certificate (NSC) is a government-backed savings bond specifically created to cater to small and medium-income investors in India. It offers a fixed return on investment along with tax benefits, making it one of the most popular savings instruments in the country.
About NSC
NSC is a fixed-income investment scheme that you can buy from any post office branch or authorized banks in India. The Government of India initiated it with the aim to stimulate a habit of savings among people while offering them an opportunity to lower their tax liability. As a government-backed instrument, it poses very low risk and guarantees fixed returns.
The Functioning of NSC
NSC works on the premise of lending your money to the government. When you purchase an NSC, you essentially lend your funds to the government for a fixed tenure of five years. This money is used for various developmental initiatives by the government. The interest rate on NSC is reviewed quarterly by the Ministry of Finance and may undergo changes depending on market conditions. As of now, NSC offers an annual interest rate of 7.7%, compounded annually.
Fundamental Features of NSC
The National Savings Certificate brings numerous benefits and features to the table, making it a viable savings and investment option for the citizens of India.
- Consistent Income
One of the key advantages of NSC is the steady and guaranteed returns it offers. At present, NSC proffers an annual interest rate of 7.7%. This interest rate is subject to quarterly reviews by the Government, ensuring its alignment with current market conditions.
- Interest Compounding
A key characteristic of NSC is that the accrued interest gets compounded annually and reinvested during the initial 4 years. The entire interest amount is then paid out upon maturity, amplifying the overall returns on the investment.
- Nomination Facility
NSC provides an option for the investor to nominate an individual, including minors, who can inherit the scheme in the event of unfortunate circumstances like the investor’s demise. This ensures the continuity and safety of the investment.
- Tax Benefits
In addition to its stable returns, NSC also offers tax benefits. Under Section 80C of the Income Tax Act, investors are entitled to a tax relief of up to Rs. 1.5 lakh on their invested sum. Moreover, as the earned interest is reinvested, it also qualifies for tax exemption.
- Investment Flexibility
NSC provides flexibility in terms of the investment amount. Starting from a minimum of Rs. 1000, there is no upper limit set for investment in NSC. However, the maximum amount that qualifies for tax benefits under Section 80C is Rs. 1.5 lakh.
- Defined Tenure
The NSC has a lock-in period of 5 years, indicating the maturity period of the investment. However, there are certain circumstances such as the death of the holder, court orders, or forfeiture by a pledgee, where early withdrawal of the investment is permitted.
- Easy Accessibility
The NSC certificates can be purchased conveniently from any post office or authorized bank after successful KYC verification. Furthermore, the certificate can be easily transferred from one post office to another or from one individual to another, offering enhanced flexibility without impacting the terms of the original certificate.
This wide array of features makes NSC a comprehensive savings and investment tool, suitable for individuals seeking secure, stable returns along with tax benefits.
Key Benefits of NSC
NSC comes with several perks:
- It provides a guaranteed interest rate of 7.7% per annum, compounded annually.
- It helps inculcate long-term savings with a lock-in period of five years.
- Under Section 80C of the Income Tax Act, 1961, NSC allows a tax deduction of up to Rs. 1.5 lakh.
- Being backed by the government, it is a secure and low-risk investment option.
Eligibility Criteria for NSC
Here are the qualifying parameters for an individual wishing to invest in the National Savings Certificate (NSC):
- Only Indian citizens are allowed to invest in NSC.
- Non-resident Indians (NRIs) are not eligible for NSC investments.
- The scheme does not prescribe any age limits; individuals of all ages can invest.
- Investments can be made individually or jointly with up to three adults. Moreover, an individual can invest on behalf of a minor or a person of unsound mind. Minors above the age of 10 are also permitted to invest in their own capacity.
- Entities such as Hindu Undivided Families (HUFs), trusts, and both private and public limited companies (PLCs) are excluded from investing in NSC.
Types of NSC Certificates
The National Savings Certificate (NSC) scheme presents several certificate types based on the holding format. These include:
- Individual Holder Certificate: These certificates are issued to an individual investor or on behalf of a minor, following an investment.
- Joint A Type Certificate: Issued to two adult investors jointly, these certificates require both holders for redemption.
- Joint B Type Certificate: Also issued to two adults jointly, these certificates can be redeemed by either of the holders or by the survivor.
Historically, the scheme offered two certificate types determined by the maturity period – NSC VIII Issue and NSC IX Issue. However, as of December 2015, the government ceased the NSC IX Issue. As such, only the NSC VIII Issue, which carries a 5-year lock-in period, is currently available for subscription.
Document Required for NSC
If you’re looking to invest in NSC, you would be required to furnish the following documents:
- Proof of Identity: This could be your passport, PAN card, driver’s license, senior citizen ID card, or any other document issued by the government that attests to your identity.
- A Recent Photograph: You would need to provide a recent photograph of yourself.
- Proof of Residence: Documents such as utility bills (e.g., electricity or phone bill), passport, or bank statement can be used to verify your residential address.
- NSC Application Form: An application form for the NSC, which can be obtained from a post office, needs to be duly filled. The National Savings Certificate (NSC) can be acquired through cheque, cash, or a demand draft addressed to the postmaster at the post office from where you plan to get the NSC.
- Signature of a Witness: To finalize the procedure, a witness’s signature would be necessary.
How to calculate Interest rate for NSC
To determine the final maturity amount from your NSC investment, you would use a specific mathematical formula:
The formula is: Final NSC Value = Principal Invested * (1 + Rate of Interest) raised to the power of 5.
Here’s what each term in the formula denotes:
- The Final NSC Value is the total amount you will receive after 5 years.
- The Principal Invested refers to the original amount you have invested in the NSC.
- The Rate of Interest is the annual interest rate provided by NSC, currently at 7.7%¹².
- The term 5 represents the 5-year maturity period of the NSC.
So, if you were to invest Rs. 10,000 in NSC at an interest rate of 7.7%, your final maturity amount after 5 years would be calculated by plugging these values into the formula. The resulting amount is your Final NSC Value, which in this case would be Rs. 14,480.
Process for Online Investment in NSC
If you wish to invest in NSC online, you can follow the ensuing steps:
- Access your internet banking account through a public sector bank or a particular authorized private bank that provides NSC services.
- Navigate to the “General Services” segment, select “Service Requests”, and then opt for “New Requests”.
- Choose the option “NSC Account – Open an NSC Account (For NSC)”.
- Complete the NSC application form, providing all necessary details, such as the investment amount, nominee’s name, etc.
- Submit self-certified copies of required KYC documents like proof of identity, proof of address, photograph, etc. You will also need to present the original documents for additional verification.
- Finalize your investment by making the payment either in cash or through a cheque or demand draft drawn in favour of the postmaster of the post office where you are purchasing your NSC.
In case you prefer an offline method, you can visit your local post office and procure NSC in e-mode or passbook mode by adhering to a similar procedure.
Can I Transfer My National Savings Certificate (NSC) to Another Person?
Certainly, it is possible to transfer your National Savings Certificate (NSC) to another person, subject to specific conditions. These include:
- The certificate can be transferred anytime between the date of issuance and the date of maturity.
- The facility for transfer can be used ONLY once during this period.
- The individual to whom you are transferring (transferee) must meet the eligibility criteria to own an NSC.
- The certificate cannot be transferred if it is pledged or if there is a court order against it.
To effect the transfer of your NSC to another eligible individual, adhere to these steps:
- Procure the NC 34 form, either by downloading it online or collecting it from your local post office, and complete it.
- Ensure that both you (transferor) and the person you are transferring to (transferee) have signed the form.
- Submit the completed form along with the original NSC certificate to your local post office to finalize the transfer.
- Should there be a requirement, be prepared to pay a nominal fee for the transfer process.
Overview of Investing in NSC: From Acquisition to Maturity
Investment Details for NSC
You can begin investing in NSC with a minimum of Rs. 1000, and thereafter in multiples of Rs. 100. NSC doesn’t impose a cap on the maximum investment, but the tax deduction under Section 80C is restricted to Rs. 1.5 lakh.
Procuring NSC
NSC can be procured in either electronic mode (e-mode) or passbook mode from any post office branch or authorized banks in India. For the online e-mode, an active savings account with internet banking facilities is necessary. Physical NSC certificates were discontinued in July 2016.
Nomination in NSC
You can nominate someone for your NSC certificates while buying or later, by completing a nomination form at the issuing post office or bank. The nomination can be altered or cancelled later if required.
Transfer of NSC Certificates
NSC certificates can be transferred to someone else after one year from the date of issue, subject to certain conditions. The transfer process involves a nominal fee and can be done only once during the tenure of the certificate.
Loan against NSC Certificates
NSC certificates can be pledged as collateral to secure loans from banks or other financial institutions. The loan amount and interest rate will depend on the lender’s policies and your creditworthiness.
Premature Withdrawal of NSC
NSC doesn’t allow premature withdrawals except in cases of the holder’s death, forfeiture by a pledgee, or by court orders.
Lost or Damaged NSC Certificates
In case of loss or damage of NSC certificates, report the incident to the issuing post office or bank and apply for a duplicate certificate. An indemnity bond in the prescribed format, along with identity and address proof, is required for this process.
Changing Personal Details in NSC
If there’s any change in your address or name after purchasing NSC certificates, inform the issuing post office or bank and submit proof of your new address or name along with the original NSC certificates.
Checking NSC Status
The status of your NSC certificates can be checked online through the official website of India Post or the authorized bank where you bought the certificates.
Maturity of NSC Certificates
Upon maturity, NSC certificates can be redeemed at the issuing post office or bank. The maturity amount, along with the accrued interest, can be received in cash or by cheque.
Reinvesting in NSC
After maturity, you can opt to reinvest in NSC by purchasing new certificates. You can also claim a tax deduction for the reinvested amount under Section 80C, up to Rs. 1.5 lakh.
That’s an overview of NSC, a government-backed investment option that not only ensures guaranteed returns but also offers tax benefits, promoting the habit of savings among Indian citizens.
Comparative Analysis of NSC with Other Tax-Saving Investment Options
Understanding the nuances of various tax-saving investment options can be crucial in planning one’s financial portfolio. This section offers a comparative overview of the National Savings Certificate (NSC) vis-à-vis other tax-saving schemes such as the Equity Linked Savings Schemes (ELSS), National Pension System (NPS), Public Provident Fund (PPF), and Tax-Saving Fixed Deposits (FD). This comparison is structured across various parameters to aid in making an informed investment choice:
| Parameter | NSC | ELSS | NPS | PPF | FD |
| Interest rate | 7.7% p.a. (consistent) | Fluctuates (market-dependent) | Fluctuates (market-dependent) | 7.1% p.a. (consistent) | 5-6% p.a. (consistent) |
| Lock-in period | 5 years | 3 years | Until retirement | 15 years | 5 years |
| Risk profile | Low-risk | High-risk | Moderate to high-risk | Low-risk | Low-risk |
| Tax benefit | Up to Rs. 1.5 lakh under Section 80C | Up to Rs. 1.5 lakh under Section 80C; Triple exemption (EEE) status | Up to Rs. 1.5 lakh under Section 80C; Extra Rs. 50,000 under Section 80CCD(1B); Partial tax on maturity | Up to Rs. 1.5 lakh under Section 80C; Triple exemption (EEE) status | Up to Rs. 1.5 lakh under Section 80C; Interest income is taxable |
| Liquidity | No premature withdrawal; Transferable after one year | No premature withdrawal; Can be redeemed after three years | Conditional withdrawal after three years; Conditional withdrawal at maturity | Conditional withdrawal from the seventh year; Conditional withdrawal at maturity | No premature withdrawal; Option for monthly payouts |
| MIS | 6.6% p.a. | 5 years | None | After maturity |
The NSC offers a fixed interest rate, presents a low risk, and boasts a moderate lock-in period along with tax benefits under Section 80C. However, unlike some other schemes, it may not provide inflation-beating returns or tax-free income and lacks liquidity.
The most suitable tax-saving scheme will largely depend on an individual’s risk tolerance, investment timeframe, income level, and financial objectives.
FAQs of National Savings Certificate
The NSC is short for National Savings Certificate. It’s a savings bond primarily used for small and medium-income investments, and it’s backed by the Government of India. This investment tool is available for purchase at post office branches and authorized banks all over India. The NSC provides both a fixed return on investment and tax benefits.
The NSC comes with several attractive benefits. Firstly, it provides a guaranteed 7.7% interest rate, compounded annually. Also, it has a lock-in period of five years, which encourages and facilitates long-term savings. Notably, it allows the holder to claim atax relief of up to Rs. 1.5 lakh can be claimed under Section 80C of the Income Tax Act of 1961.Above all, the NSC is a low-risk investment option due to the government’s backing, thus providing a sense of financial security.
The NSC is available for investment by individual Indian residents. Minors who are over the age of ten can invest either independently or through their parents or legal guardians. However, Hindu Undivided Families (HUFs), Trusts, Non-resident Indians (NRIs), and Public and Private Limited Companies (PLCs) are ineligible to invest in the NSC.
The minimum investment in the NSC starts at Rs. 1000, and subsequently, you can invest in multiples of Rs. 100. There’s no set maximum limit for the amount that can be invested in NSC, but the tax deduction under Section 80C can only be claimed up to Rs. 1.5 lakh.
An NSC can be purchased in either electronic mode (e-mode) or passbook mode from any post office branch or authorized banks in India. For the online e-mode, you need an active savings account with the post office or bank and must have activated your internet banking service. Physical NSC certificates are no longer issued as of July 2016.
An NSC matures five years from the issue date. Once matured, NSC certificates can be redeemed at the original post office or bank of purchase.
As of now, the interest rate on NSC is 7.7% per annum, compounded annually. However, this rate is subject to quarterly reviews and changes by the Ministry of Finance, depending on market conditions.
The interest on an NSC is calculated annually but is only paid out at maturity. Each year’s interest is added back to the principal amount and becomes eligible to earn interest in the subsequent year. So, for example, if you invest Rs. 10,000 in NSC at a 7.7% interest rate, you will receive Rs. 14,281 at maturity after five years.
The interest accumulated from NSC is taxable and falls under the category of ‘Income from Other Sources.’ Nonetheless, an exemption on the interest can be claimed under Section 80C up to a limit of Rs. 1.5 lakh, with the exception of the final year’s interest, which is due to maturity.
Yes, NSC certificates can be transferred to someone else after one year from the date of issue, subject to certain conditions. A transfer request needs to be submitted at the post office or bank where the certificates were purchased, along with a nominal fee. Transfers can be made only once during the tenure.
Yes, one can use NSC certificates as a secured guarantee to obtain a loan from banking institutions or other fiscal bodies. The loan amount and the interest rate depend on the lender’s policy and the borrower’s creditworthiness.
No, premature withdrawal of NSC certificates is not allowed, except in case of the holder’s death, forfeiture by a pledgee, or by a court of law order.
In case of loss or damage to NSC certificates, it’s essential to report the incident to the post office or bank where they were purchased and apply for a duplicate certificate. Submission of an indemnity bond in the prescribed format, along with identity and address proof, is required. A fee might also be charged for issuing a duplicate certificate.
If there’s a change in your address or name after purchasing NSC certificates, the post office or bank where the certificates were purchased must be informed about these changes. Proof of the new address or name, along with the original NSC certificates, should be submitted.
Yes, NSC certificates can be purchased online from any post office branch or authorized banks in India. You need an active savings account with the post office or bank and internet banking service. Your NSC account details and certificate can also be viewed and downloaded online.
The status of NSC certificates can be checked by visiting the official website of India Post or the authorized bank where the certificates were purchased. Entering the NSC certificate number and other relevant details will allow you to view your account summary, interest earned, and the maturity amount.
There are two types of NSC certificates: single holder type and joint holder type. The single holder type certificate can be issued to an individual or on behalf of a minor. The joint holder type certificate can be issued to two adults jointly, payable to either or both of them.
To nominate someone for your NSC certificates, you need to fill out a nomination form at the post office or bank where the certificates were purchased. You can make the nomination at the time of purchase or afterward. Changes or cancellations to the nomination can also be made later.
After maturity, NSC certificates can be redeemed at the post office or bank where they were purchased. Submitting the original NSC certificates along with a withdrawal form and identity proof will yield the maturity amount plus the interest earned in cash or by cheque.
Yes, upon maturity, you can reinvest in NSC by purchasing new NSC certificates from the post office or bank where you redeemed them. You can also claim a deduction for the reinvested amount under Section 80C, up to Rs. 1.5 lakh.