All you wanted to know about National Savings Certificate

National savings scheme being a government backed scheme is a fixed income investment scheme that can be opened with any post office. It is a savings bond mainly for small to mid-income investors, to invest and save income tax under Section 80C.

Who can invest?

This is a savings scheme for Indian individual citizens.

Just like some other fixed income instruments – PPFs and Post Office FDs, NSC offers guaranteed interest and complete capital protection. They do not deliver inflation-beating returns like tax saving MFs and National Pension Systems. The below are not allowed to invest in NSCs.

  • Hindu Undivided Families 
  • Trusts
  • Private and public limited companies
  • NRIs

How and where can NSCs be bought?

Earlier, physically pre-printed NSC certificates were issued by banks or Post Offices which has been discontinued from 01-July-2016. Presently, the certificates can be,

  • Recorded in two modes: e-mode or in Passbook mode.
  • Purchased from all Public Sector Banks and top three Private Banks, ICICI, HDFC & Axis.

Anyone who has Savings account with Bank/Post office, can buy NSC certificates in e-mode, access to internet banking is a must. It can be bought by an investor for self or on behalf of minor or with another adult as a joint account.

Documents Required 

  • The NSC application form.
  • Investors to provide an original identification like
    • Passport
    • PAN Card
    •  Voter ID
    •  Driving licence
    •  Senior Citizen ID, or Government ID for verification.
    • Photograph.
    • Address proof like electricity bill, Passport, telephone bill,bank statement along with a cheque.

Features and Benefits 

  • The certificates earn an annual fixed interest currently at a rate 7.9% annually, revised quarterly by the government.
  • The scheme originally had two types of certificates – NSC VIII Issue (5year tenure) and NSC IX Issue (10year tenure). Discontinuation of the latter one happened in December 2015, only the former is available.
  • The principal invested in NSC is exempt under u/s 80C of the Income Tax Act up to Rs. 1.5 lakhs annually.
  • As small as Rs. 100 can be invested as an initially with no maximum limit.
  • It can be bought from any post office on submission of required KYC documents. It is easy to transfer the certificate from one PO to another and from one person to another without impacting interest accrual/maturity of the original certificates.
  • NSC certificates are accepted as collateral or security for secured loans in Banks and NBFCs. A transfer stamp is put on the certificate and transferred to the bank while disbursing loans.
  •  Interest earned gets compounded annually and reinvested by default but will be payable only at maturity.
  • Investor can nominate any family member including a minor allowing them to inherit it in the case of investor’s demise.
  • The investor will receive the entire corpus value on maturity and need to pay the applicable tax on it while filing his Income tax returns or paying his advance tax.
  • 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 

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. The interest earned on the certificates annually, for the 1st 4 years are deemed to be reinvested and eligible for a tax break, subject to the overall annual limit of 1.5 lakh. The interest earned in the 5th year is not re-invested hence taxable as per the investor’s applicable slab rate.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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