NSC: National Savings Certificates Tax Benefits & Eligibility
If you are looking for a low-risk investment-cum-savings scheme, the National Saving Certificate is a good option. It is an Indian government initiative which allows investors from middle-income groups to save money for the future. This scheme was initiated in the 1950s. Like other fixed income instruments such as Public Provident Funds and Fixed Deposits (FDs), this scheme also provides guaranteed returns. Though many investment options are available in the market, NSC is an old scheme that has successfully stood the test of time.
This article aims to discuss the various aspects of NSC, including its features, advantages and disadvantages, the interest rate of NSC, tax benefits, eligibility to buy an NSC, and documents required for NSC and National Saving certificate rules of transfer.
Overview of National Savings Certificate
An overview of NSC is as follows:
|Rate of Interest||7.7% p.a.|
|Minimum Investment Amount||Rs. 1,000 and in multiple of Rs. 100|
|Maturity Period||5 years|
|Tax Benefit||Both the principal amount and the interest generated up to the 4th year are subject to tax deductions under Section 80C of the Income Tax Act, 1961.|
|Ideal For||Low to middle-income groups|
|Maximum investment amount||There is no maximum limit on investment in NSC|
Features of NSC
The features of the National Saving Certificate are as follows:
- You can buy NSC from a Post Office.
- The lock-in period of NSC is 5 years.
- The interest rate of NSC is revised by the Ministry of Finance every quarter. Presently the interest rate is 7.7% per annum.
- The minimum investment amount in NSC is Rs. 1,000. However, there is no highest fixed limit.
- Section 80C of the Income Tax Act, 1961 offers tax benefits on the invested amount in NSC.
- Although the interest on the principal amount is calculated annually, it is paid only after the maturity period.
- You do not have to pay any tax at source (TDS) on NSC.
- You can draw a loan against NSC from any major bank and NBFCs.
- You can nominate anyone among your family members, even a minor, as your nominee.
- You can nominate anyone among your family members, even a minor, as your nominee:
- If the owner of the NSC dies,
- If the court issues an order to withdraw the invested amount prematurely in NSC
- If the pledgee is a Gazetted Government Officer, then he can forfeit his NSC.
- Individuals can only buy NSC. Hindu Undivided Families(HUF), Trusts, private and public limited companies, and Non-Residents of India(NRI) are not eligible to invest in NSC.
- Usually, a single person is allowed to invest in an NSC Certificate. Nevertheless, Joint ‘A’ Type (held by two adults and the maturity amount is payable to both) and Joint ‘B’ (issued to two individuals who share decision-making power, but the maturity amount is payable only to one of them) type NSC certificates can be held by two persons.
Tax Benefits of NSC
Now, let’s talk about the tax benefits of NSC. Although there are no upper limits on investment in NSC, you can only get tax benefits of up to Rs. 1.5 lakh annually on your investment under Section 80C of the Income Tax Act, 1961. The interest accrued annually on the invested amount is added to the initial investment for the first four years and can be claimed a deduction under Section 80C. However, if the interest and the principal amount exceed Rs. 1.5 lakh, then the interest amount will be taxed and won’t be reinvested.
Now, let us consider an example to understand NSC tax implications more clearly.
For instance, if you purchase an NSC certificate worth Rs. 10,000. You are entitled to tax benefits on the principal amount, i.e., Rs. 10,000, during the first year. After the completion of the first year, the interest generated is added to the principal amount, i.e., to Rs. 10,000. In the second year, the invested amount and the interest earned on the principal amount in the first year are subject to tax benefits. This is applicable till the 4th year. The interest earned in the 5th year is taxable and not added to the principal amount.
The following are the eligibility criteria to invest in a National Saving Certificate:
- You should be an Indian citizen.
- You should not be a non-resident Indian (NRI) citizen. However, suppose you have subscribed to the NSC before becoming an NRI. In that case, you are eligible to hold the NSC certificate until its maturity period.
- This scheme has been designed exclusively for individuals. Hence, Trusts, Hindu Undivided Families(HUFs), and such entities are not eligible to invest in NSC.
- The natural/legal guardian of a minor or a person of unsound mind can also buy NSC on behalf of the minor or of the person with an unsound mind.
Documents Required for NSC
Listed below are the documents required for NSC –
- A duly filled-in and signed NSC application form
- Government-issued Identity proofs such as Passport, Permanent Account Number(PAN) Card, Voter ID, Driving Licence, and Senior Citizen ID.
- Your recent passport size photograph
- Your address proof in the form of an electricity bill, bank statement, or telephone bill.
Interest Rate of NSC
The interest rate of NSC is revised by the Indian Government every quarter, per the decisions taken by the Ministry of Finance. Current interest rate is 7.7%. The interest in NSC is compounded every year. Below is a rate chart on the National Savings Scheme –
|Period||Rate of Interest|
|Q4 FY 2021-22 to Q3 FY2022-23||6.8%|
|Q3 FY 2021-22||6.8%|
|Q2 FY 2021-22||6.8%|
|Q1 FY 2021-22||6.8%|
|Q4 FY 2020-21||6.8%|
|Q4 FY 2019-20||7.9%|
Advantages & Disadvantages of NSC
There are several benefits of Investing in the National Saving Certificate. They are as follows:
- The interest yielded on the NSC for the first four years out of 5 years is entirely tax-free.
- The principal amount invested while buying the NSC is exempt from taxes, provided it does not exceed Rs. 1.5 lakh annually.
- The minimum investment amount in NSC is Rs. 1,000. However, there is no upper limit while investing in NSC.
- Although only an adult can invest in the National Saving Certificate scheme, an NSC can be bought on behalf of a minor by their legal/natural guardian. Hence, individuals belonging to any age group can invest in this scheme.
- You can use NSC as collateral or security to get loans from any authorised bank or NBFCs in times of financial crisis. This is a significant advantage of NSC as it acts as an investment and loan collateral.
- Since NSC is a government-backed investment scheme, it has a low risk of default with capital protection.
- Buying NSC is simple. You can easily buy it from your nearest post office by submitting the NSC application form and relevant documents.
- You can transfer your NSC certificate from the post office where you purchased it to another post office if you relocate to a new place.
- If you lose your NSC or if it gets damaged, you can apply for a duplicate NSC very easily. You must fill out Form NC – 29 and submit it to the post office along with relevant documents.
Disadvantages of NSC
Every investment scheme also has some disadvantages, and NSC is no exception. The disadvantages of the National Savings Certificate are –
- Once you have bought an NSC of a certain denomination, you cannot reinvest in the same NSC at a later date. For instance, buying an NSC worth Rs. 1,000 will be considered the initial investment amount. You cannot add further to this initial investment. Every time you want to invest in NSC, you must buy a new one and not add to the previously bought NSC.
- Since the interest rate on NSC is fixed as per the ongoing interest rate at the purchase time and cannot be revised later, it will continue to yield a fixed return. This return might not be able to beat the escalating rate of inflation.
It is fair to conclude that NSC is an attractive investment scheme. It provides a host of benefits, such as income tax benefits, a fixed return on the investment, and a short maturity period. In addition, you can now open and close your NSC account from the comfort of your home. You can also transfer or add a nominee to your NSC so that, if anything happens to you, the nominee will be able to inherit the invested amount.
If you relocate to a new place, you can easily transfer this scheme to the nearest post office. In addition to these features, the cherry on the cake is that it is one of the safest investment options.
People belonging to any income group can invest in NSC. Despite the few disadvantages, the National Saving Certificate is a good investment option. Hence, if you are looking for investment options to diversify your portfolio, consider investing in the NSC Certificate.
Under what circumstances can the ownership of NSC be transferred from one person to another?
The ownership of a National Savings Certificate can be transferred from one person to another under three special circumstances, which are as follows –
If the court of the law directs the original holder of the NSC to transfer it to another person.
If the original holder of the NSC dies, then the NSC can be transferred to the nominee.
In the case of joint ownership of an NSC, the ownership of the NSC can be transferred from one holder to the other.
Can I avail l loans against NSC?
Yes, you can avail of loans against your National Saving Certificate. You can use the NSC as loan collateral to get loans from any authorised banks and NBFCs.
How to find the NSC certificate number?
You can find your NSC Certificate number right on your NSC. It is advisable to write your NSC certificate number at another place. This is because if your NSC certificate gets lost or is damaged, you can apply for a duplicate certificate by quoting the number of your original NSC certificate.
How to get an NSC certificate?
You must submit an NSC application form and the required documents to any post office. After you submit the application and the documents, the post office will verify the application and the supporting documents. Your request for an NSC will be processed if everything is in order. You will be given an NSC certificate against your invested amount.
Who is not eligible to invest in NSC?
A non-Resident of India, Hindu Undivided Families, Trusts, and such entities are not eligible to invest in the National Saving Certificate.
Can NSC be withdrawn before the maturity period?
Yes, NSC can be withdrawn before its maturity period under these special circumstances:
if the account holder dies in the case of a single holder certificate.
if one or both the account holders die in the case of Joint A Type and Joint B Type Certificate.
if the pledgee forfeits the NSC certificate, provided he is a Gazetted Officer.
if the court orders for a premature withdrawal of the NSC.