NSC: An overview of the National Savings Certificate

NSC or the National Savings Certificate is an investment scheme that can be opened up with any post office in India. Along with Public Provident Fund (PPF) and KisanVikasPatra, NSC is one of the most popular fixed income securities that can be availed with the help of a post office.

What is NSC or National Savings Certificate?

NSC is a fixed income scheme that was initiated by the government of India to allow investors to save taxes while investing in the savings bond. It is mainly targeted towards small and mid-income investors, although anyone can opt for this scheme. 

It is among the most popular ways to save tax under Section 80C of the Income Tax Act. This scheme, like bank FDs, Post Office RDs or PPF, is a low-risk scheme, whcih is great for risk-averse people. There are two options for the National Savings Certificate (NSC) which differ on the basis of maturity periods. One of them is a 5-year scheme while the other one is a 10-year scheme.

Although there is no top cap on the amount of money you can put in this scheme, but an investment of only up to Rs. 1.5 Lakhs will fetch tax benefits under Section 80C of the IT Act. The government keeps on revising the rate of interest every quarter. The present National Savings Certificate (NSC) interest rate for Financial Year (FY) 2020-21 is 6.8%. The interest earned on the principal amount is added back and compounded annually until the time of maturity.

How does NSC work?

NSC is basic in its working, and all you need to do is follow a few, simple steps to invest in it. You can reach out to your nearest post office and deposit the amount of money that you want to invest. The said amount shall be treated as an investment. 

If we talk about the amount, then the investment amount can be made as desired by the investor. However, it should adhere to the denomination designated by the government. You are entitled to receive yearly interest on the said investment amount.

NSC certificates usually have a maturity of 5-10 years from the date of allotment. It must be noted that no interest shall be paid to the investor until the date of maturity. The interest accrued till the maturity date shall be reinvested.

What is the suitability of NSC?

National Savings Certificate is best suited for people who are risk-averse and are looking for an option that is safe and saves taxes as well. NSC can enable a person to earn a regular and steady income. Since it’s a low-risk scheme, it offers 100% capital protection and guaranteed returns.

If we talk about drawbacks, then the only major drawback it has is that it does not provide exponential returns like Mutual Funds (that have tax saving options like ELSS “tax saver” funds) or National Pension Scheme. In this case, the government fixes the rate of interest for each quarter

The most significant advantage of NSC aside from the safety factor is that its quick access. Since, it’s available in all post offices, it has an outreach to remote/distant investors also.

What is the eligibility for investing in NSC?

Since it is an individual savings scheme, hence only the following are eligible to opt for NSC:

1. In a particular case, wherein a person was a resident of India at the time of investing in the National Savings Certificate and he/she subsequently became an NRI during or before the maturity period, as per the provisions allowed in this scheme, the person shall be permitted to the claim the interest and tax benefits accruing from investing in this investment option.
2. Karta of HUFs (Hindu Undivided Family) in his/her name only. 

However, these following list of persons are not eligible to invest in NSC.

1. Non-resident Indians
2. Trusts
3. HUFs

What are the benefits of NSC?

1. Guaranteed returns

National Saving Certificate interest rate for FY 2020-21 comes with an annual rate of interest of 6.8% (currently 8%) offering guaranteed returns and fixed income, which is an decent return for individual tax savers.

2. Variants

Initially, there have been two variants of NSC offered by the government – NSC VIII and NSC IX; NSC maturity with the 5-year and 10-year plan, respectively. In December 2015, the NSC IX was discontinued leaving NSC VIII as the only option available.

3. Tax saving

NSC option enables you to save tax on investments upto Rs.1.5 lakh under the Income Tax Act, Section 80C. Since, it is a part of investment under Section 80C, it allows the investors to book expansion upto Rs. 1.5 lakhs on the income tax.

4. Bare minimum investment

One of the most significant advantages of the National Savings Certificate is that you can start small with NSC! You can invest as less as Rs. 100 or its multiples, as the initial investment. This investment amount can be increased as and when appropriate and required by you.

5. Rate of interest

The government keeps revising the ROI quarterly, which currently 6.8%. However, on an annual basis, it allows an interest of 7.6% approximately.

6. Accessibility

It is quite easy to open an National Savings Certificate (NSC) account by visiting any Post Office. All you need to do is submit the desired documents and be KYC compliant.

7. Loan security

You are well secure with your NSC investment. Not just that, you’ll be happy to know that it is also accepted as a collateral by various Banks and NBFCs while you apply for loans. A transfer stamp to be put by the postmaster on the NSC certificate which is then transferred to the bank. 

8. Nomination

Any family member, including the minors, can be nominated against the scheme.

9. Maturity amount

Upon maturity, the complete corpus is handed over to the investor. No TDS is deducted in the case of NSC, so the certificate holder should pay the applicable tax on it. . 

When is NSC withdrawal allowed?

National Savings Certificate can only be withdrawn upon maturity. Therefore, no premature withdrawals are allowed apart from in cases of emergency like death or critical illness that too, with court’s order.

What is the tax benefit under National Savings Certificate?

National Saving Certificate comes with tax benefits. You can save tax here by investing up to Rs. 1.5 Lakhs under the Income Tax Act Section 80C. Second-year onward, the tax rebate can be claimed on the interest earned in the first year. This is so because the interest is compounded annually and added back to the initial investment. 

What is the use of National Savings Certificate calculator?

A National Savings Certificate holder can calculate how much interest he/she would receive by using a National saving certificate Calculator. With the help of this, you can calculate the amount of interest that will be earned on NSC. The below-mentioned details must be entered to calculate the interest:

• The NSC Type.
• The year the NSC was purchased.
• The amount of investment.

Once the following details are entered, the calculator will reveal the total interest amount accrued so far. The interest paid on a National Savings Certificate has compounded annually and is paid at the time of maturity. The annual interest earned on NSC can be reinvested and qualifies tax exemption under section 80C of the Indian Income Tax Act, 1961.