National Savings Certificate

National Savings Certificate (NSC) is a government-backed investment scheme launched on 8th May 1989 that combines guaranteed returns with tax savings. The National Savings Certificate is touted as one of the most commonly used saving instruments. It is available at post offices for easy accessibility by investors. NSC can be considered by conservative investors looking for low-risk investment avenues to earn a stable income.

Besides, the interest rate on the National Savings Certificate is pre-determined and guaranteed. The Ministry of Finance reviews the interest rate quarterly and can revise it. There is no maximum limit to the investment amount in this scheme. However, since investors can claim a deduction on the amount invested in NSC under Section 80C, the maximum amount they can claim a deduction is Rs 1.5. lakh, i.e., the limit of Section 80C.

All individuals, minors above 10 years of age, and legal guardians or parents on behalf of a minor can make investments in a National Savings Certificate. One can earn assured returns at the prevailing interest rate in NSC.

Please note - Hindu Undivided Families, Trusts, Non-resident Indians, Public, and Private limited companies are not allowed to invest in National Savings Certificate.

• Visit the online National Savings Certificate calculator to calculate the NSC interest rate.

• Enter the investment amount.

• The term is already set at 5 years.

• Set the prevailing National Savings Certificate interest rate.

• Click on calculate once the values are entered.

• The calculator will show the total investment, interest earned, and the maturity amount.

You can check the current interest rate of the National Savings Certificate and the past trends using the NSC interest rate chart.

• Investors can claim a deduction under Section 80C of the Income Tax Act for investment in National Savings Certificate. The deduction available is up to a maximum of ₹1.5 lakhs in a financial year. Please note, the maximum cap limit of ₹1.5 lakhs includes other Section 80C investments such as Public Provident Fund, Tax-saving Fixed Deposits, and National Pension Scheme.

• The interest earned on NSC, as such, is taxable under the head "Income from Other Sources." However, in the first 4 years, this income is reinvested. This amount can then be claimed as a deduction from Section 80C.

• The interest received in the last year (i.e., on maturity) is not re-invested. It is received in the hands of the investor and hence, is added to the head "Income from Other Sources" and is taxable as per the applicable tax slab rate. The maturity amount and interest of the first 4 years are not taxable.

However, one thing to note here is that if you have not claimed tax deductions under Section 80C for interest earned on NSC every year, they will be subject to tax. You cannot claim tax deductions for interest earned retrospectively.

Let us understand this with the help of an example. Let us say you have purchased National Savings Certificates of ₹5,000. You are now eligible to claim a deduction on the initial investment amount in the first year under Section 80C. In the second year, the interest of ₹340 earned in the first year will appear under the head Income from Other Sources. However, this amount can be claimed as a deduction under Section 80C.

Key features and benefits of National Savings Certificates are listed below:

• Fixed Income:

  You can enjoy stable and guaranteed returns. Currently, National Savings Certificate fetches an interest rate of 6.8% per annum. Furthermore, the rates are revised every quarter by the Government. Thus, you can receive assured returns by investing in National Savings Certificates for 5 to 10 years.

• Compounding of Interest:

  Interest earned on the investment gets compounded annually and reinvested for the first 4 years. You can claim a deduction for the first 4 years. In the last year, NSC interest is taxable as it is not reinvested.

• Nomination facility:

  The investor can opt to nominate a family member or a minor. This ensures the maturity proceeds can be inherited by the nominee in the case of the investor's death. The nomination rules are as follows:

  There cannot be more than one nominee, except where the denomination of the National Savings Certificate is ₹500 or more.

  In case the nominee is a minor, then the guardian or adult responsible for the minor should be disclosed to the bank or post office.

  Nomination facility is not available if the National Savings Certificate is held by a minor.

• Easy investment option:

  You can easily invest in National Savings Certificate by visiting any post office or designated public sector and private sector banks. All you have to do is submit the required KYC documents. The entire process is hassle-free and smooth.

• Tax advantage with NSC:

  Investments made towards National Savings Certificate are eligible for a deduction under Section 80C up to a maximum limit of ₹1.5 lakhs in a financial year. Thus you can enjoy tax benefits on your investments.

• Low Risk:

  Since India's Government backs national Savings Certificates, they are considered low-risk investment options and are considered ideal for risk-averse investors.

• Minimum Deposit:

  Investors can start investing in National Savings Certificate with a minimum deposit of ₹100. The investment can be made in the multiples of ₹100, and there is no upper limit.

• Loan facility:

  Individuals can take a loan against National Savings Certificate by using it as collateral with banks.

• Premature Withdrawal:

  Normally, premature withdrawal from the National Savings Certificate is not permitted. However, under special circumstances, it may be allowed. These include a court order or demise of the actual investor.

Here are the different modes in which investors can hold National Savings Certificate:

• Single Holder Type Certificate:

  As the name suggests, single holder certificates are issued to single individuals only. He or she can nominate a person for the certificate. However, the decision-making power rests with the original holder. Moreover, these certificates can also be issued to the legal guardian of a minor.

• Joint 'A' Type Certificate:

  Joint 'A' type certificates are issued to joint holders, i.e., two adults. When the certificate matures, the proceeds are payable to both such joint holders. The decision-making power is shared by both individuals. Even in the case of appointing a nominee, cancellation, or transfer of the nominee, the signature of both the joint holders is required.

• Joint 'B' Type Certificate:

  This type of National Savings Certificate is also issued to two adults. However, the main difference between type 'A' and 'B' is that the maturity value in the latter is paid to any one of the joint holders. The decision-making powers and nomination powers in type 'B' remain the same as type 'A.'

The following category of persons are eligible to invest in National Savings Certificate:

• All Resident Indians

• Karta of Hindu Undivided Families can invest in their name

Please Note:

• Non-resident Indians are not allowed to invest in NSC. However, if a resident subscriber becomes a non-resident Indian before the maturity of the certificates, he or she can hold such certificates till maturity.

• Hindu Undivided Family and Trusts cannot invest in National Savings Certificate.

Here is a list of the documents needed to invest in the National Savings Certificate:

• NSC Application Form duly filled

• Identity proof documentation such as PAN, Aadhaar Card, Driver's License, etc.

• Address proof documentation such as Aadhaar Card, Passport, Telephone Bill, etc.

• Recent photograph

• Cheque or cash of the amount you wish to invest

The table below analyses how National Savings Certificate fares against other tax-saving schemes.