NSC, or National Savings Certificate, is one of the oldest savings schemes launched by the government of India. The scheme aims to encourage small savings and provides fixed returns to its investors. The scheme is open to investment to all resident Indians looking for a safe investment option. In this article, we have explained NSC’s features, benefits, and withdrawal rules in detail.
What is the National Savings Certificate (NSC)?
The National Savings Certificate (NSC) is a fixed-income investment plan launched by the government of India in 1998 to encourage small savings among individuals. The scheme requires you to invest a fixed amount at the start of the tenure. You can invest only once in each NSC certificate. However, there is no limit on the number of NSC certificates you can hold.
The interest is generated yearly on your investment, which will automatically be reinvested into your account. At the end of the tenure, you will receive the investment amount and interest in lumpsum.
The interest for NSC is 7.7% per annum for the January to March 2024 quarter. The interest is compounded annually and is paid at the time of maturity. Since the interest is reinvested, it can be considered for tax deduction every year.
Features and Benefits of National Savings Certificate (NSC)
The following are the features and benefits of the National Savings Certificate:
Deposits
The minimum deposit for NSC is Rs 1000 and thereafter in multiples of Rs 100, and there is no limit on the maximum annual deposit. Deposits can be made through cash, cheque, demand draft, or online transfer.
NSC Interest Rate
The current interest rate is 7.7% p.a. for the January to March 2024 quarter. The Ministry of Finance revises the interest every quarter. The certificates are issued in denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000, and Rs. 10,000.
Maturity Period of NSC
Currently, NSC investments mature in 5 years. Prior to 2015, there were two types of NSC certificates – NSC VIII Issue (5-year tenure) and NSC IX Issue (10-year tenure). From December 2015, the NSC IX issue was discontinued.
Tax Benefits
Investments in the NSC scheme qualify for deductions under Section 80C, with a maximum limit of Rs. 1.5 lakh. Moreover, the annual interest accrued on the National Savings Certificate (NSC) during the initial four years is considered reinvested, i.e., added to the initial investment. Consequently, this amount is also eligible for a tax deduction within the overall annual limit of Rs. 1.5 lakh. However, the interest earned in the fifth year is not reinvested and is, therefore, taxable based on the investor’s applicable slab rate.
It is important to note that this tax exemption is available only if you opt for the old tax regime. No tax deductions are available under the new tax regime (announced in Budget 2023).
Premature and Partial Withdrawals
As per the NSC’s withdrawal rules, premature withdrawal before maturity (within five years) is not allowed. If withdrawn within the first year, no interest will be paid and attracts a penalty.
However, no penalty is levied in the following circumstances:
- In the event of the certificate holder’s demise.
- Forfeiture of the certificate, but only if the pledgee is a Gazetted Government Officer.
- If a court of law mandates the complete withdrawal of the invested amount.
To facilitate withdrawal, the following documents need to be submitted by the certificate holder:
- Original NSC certificate
- NSC encashment form
- Proof of identity
- Attestation by the guardian if purchased on behalf of a minor.
- In case of the certificate holder’s demise, the nominee can withdraw the entire invested amount by submitting Annexure 1 (registered at a Post Office) and Annexure 2 for legal evidence.
Account Transfer
NSCs are transferable between post offices and can also be transferred to a different individual. While the certificate remains unchanged, the name of the previous certificate holder will be replaced with the new holder’s name during the transfer process. The account transfer can happen only once during the entire tenure of your investment.
NSC Eligibility
To invest in NSC, you must meet the eligibility criteria.
- Only residents of India can invest in NSC.
- Both adults and minors can invest in the scheme. Any legal guardian can invest on behalf of the minor.
- Non-resident Indians (NRI) cannot invest in NSC. However, if a resident becomes a NRI, they can hold it until maturity.
- Trusts and Hindu Undivided Families (HUF) cannot invest in NSC. However, the karta of HUF can invest in their name.
How to Invest in a National Savings Certificate (NSC)?
You can open an NSC account through a post office. Investing in NSC is possible through both online and offline channels. Here’s a step-by-step guide for each method:
Offline
Steps to invest in NSC offline:
- Obtain the NSC application form either online or from any post office.
- Complete the form with all the necessary details.
- Submit the form along with self-attested copies of the required KYC documents.
- Bring the original documents for verification and make the desired investment payment.
- Upon approval, collect the NSC associated with your application.
Online
Steps to apply for NSC online:
- Sign in/ Sign up on the Department of Posts (DOP) net banking portal.
- Under ‘General Services’, select ‘Service Requests’.
- Click on ‘New Requests’ and opt for ‘NSC Account – Open an NSC Account’.
- Enter the deposit amount and choose the debit account linked to the PO savings account.
- Select ‘Click Here’ to review and accept the terms and conditions.
- Enter the transaction password and click on ‘Submit’.
- View and download the deposit receipt.
- Log in and click on ‘Accounts’ to access the details of your NSC account.
Documents Required for Opening NSC Account
The following are the documents required for opening an NSC account:
- NSC application form duly filled and signed
- Applicant’s recent photograph
- Applicant’s identity proof – Passport, Voter ID, Driving license, etc.
- Applicant’s address proof – Passport, utility bills, Bank statement, etc.
- Any other documents as may be requested by the post office or bank
Loan Against NSC
You can take a loan against your investment in NSC. However, the loan availability is subject to the following terms and conditions.
- Only resident Indians can apply for a loan against NSC. NRIs holding an NSC certificate cannot apply for a loan.
- Only a few banks give loans against NSC. Hence, checking with your bank before applying for one is better.
- The loan margin depends on the time left until maturity.
- The interest rate on the loan varies across banks and also the individual applying for the loan.
- The tenure of the loan will be similar to the time left until the
Duplicate National Savings Certificate (NSC)
Prior to 2016, if you invested in NSC, the banks or post office gave you a physical certificate against your investment in NSC. However, since 2016, physical certificates have been discontinued, and the banks are either issuing e-certificates or passbooks for investment in NSC. If you lose the passbook or the e-certificate, you need to fill out the duplicate savings certificate form to get the new passbook or certificate.
Conclusion
The National Savings Certificate (NSC) is a short-term small savings scheme. It offers fixed and guaranteed returns and also offers tax benefits upon investing. Hence, this scheme best suits investors looking for a fixed-return investment for a short tenure that can give a higher return than a savings bank account and fixed deposit. It is also suitable for equity investors looking to diversify their portfolios by investing in low-risk investments.
Frequently Asked Questions (FAQs)
Can I avail loan against NSC?
Yes, both NBFCs and banks accept NSC as collateral for secured loans, with the transfer facilitated by the postmaster.
Is it possible to cancel or change a nomination in NSC?
Yes, the nomination in NSC can be cancelled or changed at any time by submitting FORM-3.
Is NSC interest taxable?
Yes, NSC interest is taxable under ‘Income from Other Sources’. Also, the interest is reinvested in the initial four years and can be claimed under Section 80C as a deduction. The 5th year’s interest is taxable based on the respective income tax slab.
How can one withdraw NSC after maturity?
Visit the nearest post office and submit a handwritten maturity claim, the original NSC certificate, and identity proof.
Is there a limit on the number of NSCs that can be purchased?
There is no specified maximum limit on the number of NSCs that can be purchased.
Is the NSC interest rate fixed for five years?
Yes, the NSC term is fixed at five years, with the interest rate set at 7.70% p.a., as the Ministry of Finance announced in January 2024.
Can one invest more than Rs. 1.5 lakh in NSC?
There is no specified maximum limit for NSC investments. However, investments exceeding Rs. 1.5 lakh annually does not qualify for a tax rebate under Section 80C. Additionally, the interest earned is reinvested in the initial investment and is eligible for a tax break.
What will be 1 lakh NSC after five years?
The value of Rs. 1 lakh invested in NSC after five years will be Rs. 1,44,903.