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National Savings Certificate is a common investment instrument for tax saving and guaranteed returns. First introduced in the 1950s, the scheme quickly climbed the charts with its low-risk feature and government-backed advantage. Conservative investors looking to invest for shorter durations opt to invest in the National Savings Scheme to balance their financial portfolio.
The NSC interest rates are fixed by the government and revised quarterly. The NSC interest rate in 2020 and 2021 currently stands at 6.8%, compounded annually. Investors can enjoy several tax benefits on the investment amount as well as the interest earned under Section 80C of the Income Tax Act, 1961. Read on to learn more.
Based on the decisions of the Ministry of Finance, NSC interest rates are subject to revision every quarter. The NSC interest is compounded annually but paid only on maturity. Listed below is the NSC interest rate chart of the previous years:
| Period | Interest Rate (% per annum) |
| Jan 2021 to March 2021 | 6.8% |
| October 2020 to December 2020 | 6.8% |
| July 2020 to September 2020 | 6.8% |
| April 2020 to June 2020 | 6.8% |
| January 2020 to March 2020 | 7.9% |
| October 2019 to December 2019 | 7.9% |
| July 2019 to September 2019 | 7.9% |
| April 2019 to June 2019 | 8.0% |
| January 2019 to March 2019 | 8.0% |
| October 2018 to December 2018 | 8.0% |
Normally, investments in National Savings Certificate cannot be withdrawn before maturity. However, under the following special circumstances, premature withdrawal is allowed:
The interest applicability on premature withdrawal of National Savings Certificate is tabled below:
| Time of Withdrawal | Interest Applicability |
| Withdrawal before the completion of 1 year | No interest |
| Withdrawal after the completion of 1 year | Interest offered at the prevailing rate |
The investor shall require the following documents for premature withdrawal of the National Savings Certificate:
Let us learn how to calculate the NSC interest rate with the help of an example. Consider the following:
Investment made - ₹10,000
Purchase date - 1st July 2019
Interest rate - 6.8% per annum
Lock-in Period - 5 years
| Year | Principal Sum (₹) | Yearly Interest at 6.8% (₹) | Aggregate Interest (₹) | Aggregate Amount (₹) |
| 1 | 10,000 | 680 | 680 | 10,680 |
| 2 | 10,680 | 726 | 1,406 | 11,406 |
| 3 | 11,406 | 776 | 2,182 | 12,182 |
| 4 | 12,182 | 828 | 3,010 | 13,010 |
| 5 | 13,010 | 885 | 3,895 | 13,895 |
One of the key factors that make the National Savings Certificate a popular investment option amongst investors is the tax benefits it offers apart from guaranteed returns. So, you not only earn a fixed income but can also save on tax. Thus, this savings-cum-investment instrument is doubly beneficial. Here are the tax benefits it offers:
Investors can claim a deduction for the investments made in the National Savings Certificate up to ₹1.5 lakhs per annum under Section 80C of the ITA.
The interest on NSC for the first 4 years can also be claimed as an NSC investment deduction. This is because the interest is reinvested in NSC.
The interest earned in the last year, i.e. year 5, becomes available in the hands of the investor. Hence, it becomes taxable under the head "Income from Other Sources" and is taxed as per the applicable tax slab rate of the individual.
Let us look at the documents required to invest in National Savings Certificate:
You can download the Sukanya Samriddhi Yojana form online from multiple sources including the following:
The National Savings Certificate scheme was launched by the government keeping individuals in mind. Thus, all resident individuals can invest in National Savings Certificate. In other words, non-resident Indians are not allowed to invest in this investment scheme.
Furthermore, Hindu Undivided Family, Trusts, Public and Private companies also cannot invest in National Savings Certificate. However, the Karta of Hindu Undivided Family can invest in the National Savings Scheme in their name. Legal guardians or parents can also buy a National Savings Certificate on behalf of a minor.
Yes, the rate of interest on the Post Office National Savings Certificate is predetermined or fixed by the government every quarter.
Interest on NSC is taxable under the head of "Income from Other Sources". However, in the first four years, interest is reinvested and therefore, can be claimed as a deduction under Section 80C of the ITA. The final year's, i.e. 5th year's interest, is taxable according to your income tax slab.
National Savings Certificates offer guaranteed returns, are backed by the government, and also offer tax benefits. However, the return on NSC at present is much lower than other investments, including other government-backed investments like PPF. Although the lower lock-in period and lower risk may seem attractive, NSC returns rarely beat inflation. Other options like ELSS may give better returns over the same investment horizon.
Yes, National Savings Certificate comes with a lock-in period of 5 years. However, premature withdrawal is permissible under special circumstances which include a court order, sudden demise of the investor, or if the certificate gets forfeited.
National Savings Certificate and Public Provident Fund are government-backed investment schemes with different features. For instance, NSC has a minimum investment duration of 5 years while PPF is a long-term retirement investment instrument with a tenure of 15 years. When considering returns, PPF currently offers an interest rate of 7.1% p.a. whereas NSC returns are 6.8% p.a. Therefore, you will need to consider these aspects before investment. If you have a long-term investment horizon, PPF may be more suitable. If your investment horizon is shorter, NSC may be a more suitable option than PPF.
However, returns on both NSC and PPF barely beat inflation. An alternative worth considering is ELSS mutual funds. ELSS mutual funds are market-linked and hence, have provided higher returns over a medium to long-term investment horizon in the past. At the same time, they offer tax benefits under Section 80C, much like NSC and PPF.
Investors can buy National Savings Certificate through cash, cheque, or demand draft at post offices or banks. With a savings account and internet banking at a post office or at an authorized bank, you can also buy NSC through the e-mode.
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