National Savings Certificates: Meaning, Process to Invest, Taxation Rule and More

Many conservative investors look for investment opportunities that offer capital safety, predictable returns and tax benefits. While market-linked investments can generate higher returns, they also come with higher risks. This is where the National Savings Certificate (NSC) stands out and helps risk averse investors to take advantage.

NSC is a government backed savings instrument that helps individuals increase their wealth steadily along with tax deductions. If you are a first time investor or want to diversify your portfolio with low risk investments, NSC can be a good addition to your financial plan. In this article, we will explore all about national savings certificates.

What are National Savings Certificates?

Offered through post offices, National Savings Certificates (NSC) are a fixed income investment scheme that provides safety along with tax benefits. The scheme allows small and medium income investors to invest regularly along with guaranteed returns over the long term. You can invest in NSC with a minimum investment of ₹1,000 and in multiples of ₹100, with no cap on the maximum limit.

The national savings certificate post office scheme comes with a lock-in period of 5 years and offers a fixed interest rate. The interest generated on the investment is compounded annually and paid at maturity, helping investors take advantage of the power of compounding. The interest rate is revised every quarter by the Ministry of Finance subject to market conditions. National Savings Certificates are considered one of the safest investment options in India due to the government backing. You can calculate the expected return on investments by using any NSC calculator.

National Savings Certificates: Eligibility Criteria

The following individuals are allowed to invest in NSC:

• Resident Indian individuals.
• Adults investing individually.
• Joint account holder (allowed up to 3). Joint ‘A’ account operated jointly by all account holders or by the surviving holders together. Joint ‘B’ account operated by any one of the account holders or by surviving account holders individually.
• Parents or guardians on behalf of the minor.
• Minors above 10 years of age.

Notes:

• There is no restriction on the number of accounts an individual can open.
• After turning 18 years of age, the minor account holder should fill up the Account Opening Form (AOF) and furnish their KYC documents to get the minor account upgraded into an adult account.

How to Invest in National Savings Certificates?

An Indian individual can invest in NSC by following these simple steps: Step 1: Go to your nearest post office.

Step 2: Fill the NSC application form.

Step 3: Submit the required KYC documents.

Step 4: Now, make payment through cash, cheque or demand draft or eligible digital payment method.

Step 5: Receive the NSC certificate.

Also Read: Kisan Vikas Patra Scheme: Meaning, Benefits, Taxation and More

Features and Benefits of Investing in NSC

• Government-Backed Security: Due to the sovereign backing, national savings certificates become a low-risk investment option.
• Guaranteed Returns: The national saving certificate interest rate is fixed at the time of investment and remains unchanged across the investment tenure.
• Compounding Benefits: The interest on national savings certificates is compounded annually and reinvested automatically. This allows investors to earn interest on interest.
• Tax Deductions: Investments in national savings certificates are eligible for tax deductions up to a maximum of ₹1,50,000 under Section 80C of the Income Tax Act 1961.
• Collateral Facility: You can pledge your NSC certificate as collateral for loans from banks and financial institutions.

Documents Required for Investment in NSC

Individuals should keep the following documents ready while investing in NSC:

• Aadhaar Card
• PAN Card
• NSC application form
• Passport size photo

Tax Treatment of National Savings Certificates

National Savings Certificates come with both tax savings and taxable components.

Deduction on Investment: The investment made is deductible under Section 80C till an aggregate ceiling of ₹1.5 lakh each year.

Taxation of Interest:

• Interest earned over the initial 4 years would be considered as reinvested and therefore, eligible for deductions under Section 80C within the total ceiling.
• The interest earned in the 5th year, however, will not be eligible for deductions and shall be taxed at the respective income tax slabs of the investor. Investors can include the taxable interest in their income tax computation.

Premature Withdrawal Rules on NSC

You cannot close an NSC account before its maturity date except under some conditions listed below:

Death of Account Holders:

• In case of single account holders, upon death of the account holder.
• In case of a joint account, upon death of any or all account holders.

Forfeiture by a Pledgee: If you have pledged your NSC in accordance with the scheme and it is forfeited by a gazetted officer.

Court Orders: If the premature closure has been directed by the court.

Payment of Amount in case of Premature Withdrawal

• NSC Closed in Less than One Year: In the case of withdrawal of an amount before the completion of one year from the date of deposit, only the principal amount deposited will be payable, without interest.
• One Year to Less Than Three Years: For closure of the account between 1 year and less than three years from the date of deposit, interest will be paid only on the principal amount for the number of months since deposit in the account at the applicable rate for the Post Office Savings Bank.
• More Than Three Years: In case of withdrawal after 3 years from the date of opening the account but before maturity, payment will be made with the principal amount and the interest. It will be calculated proportionately based on the amount deposited.

Transfer of NSC Account

The transfer of NSC account can be made to another eligible person in the following situations:

• When the account holder dies (in case of single accounts) or when all the account holders die (in case of joint accounts).
• According to the decision of the Court.
• As a result of the pledging under the scheme.
• If the joint account holder dies, then the transfer can be made to the surviving account holder(s).

NSC vs KVP: Key Differences

FAQs

What is a National Savings Certificate (NSC)?

National Savings Certificate (NSC) is a government-backed fixed-income savings scheme offered through post offices in India. It provides guaranteed returns and tax benefits, making it a popular investment option for risk-averse investors.

What is the current national saving certificate interest rate?

The national saving certificate interest rate is determined by the Government of India and is revised periodically. The applicable rate at the time of investment remains fixed throughout the certificate's tenure.

How is the interest on National Savings Certificate calculated?

The interest on National Savings Certificate is compounded annually and reinvested automatically. Investors receive the accumulated principal and interest amount upon maturity after five years.

Does NSC provide tax benefits?

Yes. Investments in NSC qualify for tax deductions of up to ₹1.5 lakh under Section 80C of the Income Tax Act. Certain accrued interest may also qualify for deductions, subject to applicable tax rules.

Can I withdraw my NSC investment before maturity?

Premature withdrawal is generally not allowed. However, it may be permitted in specific cases such as the death of the account holder, court orders, or forfeiture by a government-authorised pledgee.

How can I purchase National Savings Certificates through a post office?

You can invest in the national savings certificates post office scheme by visiting a nearby post office, completing the application form, submitting KYC documents, and making the investment payment through accepted modes.