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All You Need to Know About NSC Interest Rate before Investing

What Is the NSC Interest Rate?

We consider mutual funds, equity, and stocks, as the only investment channels. But are these financial instruments accessible to all? In India, banking services are still not available to many. Here comes the post office. Post Offices in India are widespread, and their roots have reached even the remotest areas in the nation.

And they offer banking facilities like savings accounts and investment schemes to every Indian citizen, irrespective of their socio-economic strata. National Savings Certificate or NSC is an investment scheme offered by Indian post offices. Backed by the Indian government, this investment scheme is secure and low-risk.

This perfect savings policy with decent returns is accessible to every Indian citizen except NRIs (Non-resident Indians) and HUFs (Hindu Undivided Families).  

NSC Interest Rate for FY 2022

The Government of India reviews and changes the NSC interest rate periodically. The current National Savings Certificate interest rate for FY 2022 is 6.8%, compounded annually. Although the interest is calculated annually, it is paid only at maturity.

Since the interest is compounded annually in this scheme, the interest earned in one year adds to the next year's principal, and the interest is calculated on this increased amount for the next year.

To know more about the returns you can expect, you can adjust the investment amount and calculate the NSC interest through any NSC interest calculator available online.

NSC Interest Rates Over the Years

As we have discussed, NSC rates change from time to time. Although 6.8% might seem an average return compared to other traditional investment options, it is a consequence of inflation and the evolution of the Indian economy. Let us look at the NSC interest rates of the VIII issue over the past decade to learn more about it.

Period Rate of Interest
2022- 2023 6.8%
2021- 2022 6.8%
2020- 2021 6.8%
2019- 2020 8.0% (Q1) and 7.9% (Q2, Q3 & Q4)
2018- 2019 7.6% (Q1 & Q2) and 8.0% (Q3 & Q4)
2017- 2018 7.9% (Q1), 7.8% (Q2 & Q3) and 7.6% (Q4)
2016- 2017 8.1% (Q1 & Q2) and 8.0% (Q3 & Q4)
2015- 2016 8.5%
2014- 2015 8.5%
2013- 2014 8.5%
2012- 2013 8.6%
2011- 2012 8.4%

Salient Features of NSC

NSC is one of the most popular savings schemes hosted by the Indian Post Offices. Let us look at some of the significant features of this investment policy. 

Types of National Savings Certificates

NSC was available in two tenure formats: NSC VIII issue and NSC IX issue. However, the NSC IX issue certificate has been discontinued by the government of India since 2015. 

Maturity Period

NSC (VIII issue) has a maturity period of five years. Earlier, post offices offered NSC schemes for a two-year tenure, called the NSC IX issue. 

Investment Range

The minimum amount needed for purchasing a national savings certificate is INR 1000. Of course, an investor can increase their deposits later on as desired in multiples of 100. However, there is no ceiling to investment capacity in this scheme. 

Interest

NSC rates are revised from time to time by the Ministry of Finance. The NSC interest is, however, only paid at maturity.

There are third-party NSC interest rate calculators available online to assist you in checking the possible returns on your investments.

Nomination Facility

The nomination facility financially safeguards the dependents and family members of investors.

In any untoward circumstance, like the account holder's demise, during the active tenure of the scheme, the policy gets transferred to the legal heir or assigned nominee. 

Loan Facility

Individuals can assign their National Savings Certificate as collateral to financial institutions while applying for loans. 

No Specified Number of Accounts

An NSC investor can open an unlimited number of accounts under this scheme. 

Who Is Eligible to Purchase NSC Certificates?

The NSC scheme is easily accessible through Indian post offices. But this does not mean everyone can purchase one. Let us see who is eligible to get the benefits of the National Savings Certificates. 

  • The NSC scheme is quite flexible and caters to diverse groups across the socio-economic and demographic strata. There is no age specified in this investment policy. Thus, allowing people of every age group to benefit from the returns.
  • The only prerequisite to opening an NSC account is that you must be an Indian citizen.
  • NRIs cannot purchase NSC. If any citizen already had a National Savings Certificate issued before becoming an NRI, they can keep the NSC till maturity.
  • NSC VIII issue prohibits trusts and Hindu Undivided Families (HUF) from purchasing National Savings Certificates.
  • Individuals can invest in National Savings Certificates individually or jointly. Parents or guardians can invest in the NSC scheme on behalf of minors above ten years of age.

How to Apply for National Savings Certificates?

The application procedure for the NSC scheme is straightforward. Submit the required documents at a nearby post office and wait for verification. Once the details are verified, and your account is open, you can invest using a cheque or cash. 

Here are the vital documents you must submit before purchasing a National Savings Certificate. Remember, any erroneous submission can lead to the cancellation of the application. 

  • The NSC application form has to be filled with all the accurate data. You can find the application form on the official website of the Department of Posts (Ministry of Communications). 
  • Submission of a recent passport-size photograph. 
  • Identification Proof Certificate- Passport, Voter ID card, Aadhaar Card, Permanent Account Number (PAN), Driving license, etc. 
  • Submission of address proof is also essential to complete the verification process. These documents include passport and utility bills like electric, water, and telephone bills. 

How to Invest in NSC?

Offline Investment for NSC

National Savings Certificates are purchased from nearby post offices by submitting the required documents. Here is how you can do it:

  • Submit a properly filled-out NSC application to the post office. You can get these forms from the post office or take printouts of the form available online on the official website of Indian Post. 
  • Submit self-attested copies of documents at the post office. 
  • Provide original documents for verification. 
  • Upon successful verification, complete the investment procedure through cash, cheque or demand drafts. 
  • Once the process is complete, post offices will provide you with printed NSCs. 
  • For investors who prefer the offline mode, all the transactions are recorded in passbooks like a bank passbook. The passbook will contain the signatures of officials from the post office. 
  • Post office officials will take the submission of the passbook receipt. The passbook contains the NSC number of your National Savings Certificate. In case you lose the National Savings Certificate of your scheme, you can apply for a passbook instead of the printed certificate. 

Online Investment for NSC

The following are the steps to invest in a National Savings Certificate online. 

  • The prerequisite to opening an NSC account is having a post office savings account and activating the internet banking facility against that account. 
  • Click on the 'General Services' section and select 'Service Requests'. Then choose 'New Requests'. 
  • The next step is to select 'NSC Account- Open an NSC Account'. 
  • Enter the amount you wish to invest and link your savings account from which the funds are to be deducted. 
  • Read and accept the terms and conditions before submitting the NSC application. 
  • Enter your PIN and click on 'submit' to complete the procedure. 
  • Upon submission of your online NSC application, you can view and download the receipt. 
  • To view the NSC deposits, login later on and go to the 'Accounts' sections to find all your NSCs listed. 
  • The nominee for the online NSC application will be the same as the nominee of your savings account. 

Types of NSC Accounts

There are three types of National Savings Certificates issued by the Indian post offices:

  • Single Account Certificate- This type of certificate is issued to individual investors. They can either buy the NSC scheme for themselves or on behalf of a minor.
  • Joint A Type Account Certificate- This type of NSC scheme has two account holders with equal shares of the maturity amount.
  • Joint B Type Account Certificate- In the Joint B type National Savings Scheme Certificate, there are multiple account holders. But the maturity benefits are given to only one of the holders. 

Advantages of Holding National Savings Certificates

Flexible Investment Amount

NSC has made investment avenues accessible to even low-income groups, as the minimum investment amount for the scheme is INR 1000. Most investment policies require substantial deposits, but with NSC, everyone can earn interest with nominal deposits.

There is also no upper limit to investment in this policy. Hence, it is the ideal customisable investment scheme where every Indian citizen can invest according to their salary, expenses, and financial targets. 

Assured Returns

The interest rate of NSC is not subject to market risks. Hence, the NSC interest earned is fixed. Therefore, NSC is a popular investment scheme among risk-averse investors.

The Government of India revises the NSC rates periodically. The change in rates will affect the interest accrued.

Accessibility

Post offices are established even in the remotest of places in India. There might be no banks available for opening a basic savings account.

In such demographics, post offices have reached out to a large population, offering savings accounts and investment opportunities through NSC and other similar schemes.

Tax Benefits

An investor enjoys tax benefits on his investments in National Savings Certificates and the interest earned under Section 80C of the Income Tax Act. 

Loan Facility

Even if the discussion thus far has not convinced you to purchase NSC, we are sure the next feature we enumerate will make the National Savings Certificate scheme even more attractive. You can not only earn decent interest on your deposits, but you can also apply for loans against those investments. 

A few leading financial institutions offer loans against NSC. Submit your NSC documents as collateral to avail of the loan. The interest rate for the loan will depend on the assets of the applicant and the bank. The loan period can be as long as the NSC scheme (used as the collateral for the loan) remains viable, i.e. until its maturity. 

Transfer Facility of NSCs

The first part of this feature is location transfer. Investors can transfer their NSC policy from one post office to another if he is moving to a new city or state. This transfer does not affect the maturity benefits or the interest accrued over time. 

The other type of transfer allowed in the NSC scheme is the transference of ownership of the scheme. It is possible upon four extraordinary conditions specified by the authorities:

  1. If the owner dies before the maturity period, it will pass on to the assigned nominee or legal heirs. 
  2. In the case of a joint account, the certificate will pass on to the other account holders. 
  3. Upon special order of the court. 
  4. If the account is pledged to an authority. 

Taxation on NSC

  • NSC investors enjoy tax benefits under Section 80C of the Income Tax Act, up to INR 1.5 lakh. 
  • The interest earned each year is re-invested into the policy. Hence, the interest accrued for the first four years is applicable for tax benefits. 
  • The interest earned in the fifth year of the scheme is not exempt from taxability, as this does not get re-invested into the policy (NSC has a lock-in period of five years). This interest is treated as part of the gross income and is subject to taxation according to the account holder's tax slab. 
  • Tax Deducted at Source (TDS) is not applicable in National Savings Certificates. 

Early Withdrawal of NSC Investment

The maturity period of an NSC investment is five years. It denotes the amount invested or the interest gained cannot be withdrawn before the account completes five years.

Yet, there are extraordinary circumstances under which early withdrawal of NSC investment might be permissible. 

Special Conditions for Premature Withdrawal of NSC Funds

  • If the account holder dies while the certificate is active, i.e. before the policy matures. 
  • In a unique situation where the NSC certificate is forfeited. 
  • If a court issues an order directing the Post Office to return the amount to the investor. 

Documents Needed for Premature Withdrawal

Here is a list of documents you need to withdraw funds from your NSC investment prematurely. 

  • An original NSC certificate is needed. 
  • Duly filled NSC encashment form. 
  • Identification proof documents. 
  • Attestation by guardians for accounts created for minors.
  • Nominees appealing for premature withdrawal of NSC investments on the occasion of the account holder's death are obliged to submit annexures 1 and 2. 

Interest Calculation for Premature Withdrawal

  • The account holder will not earn any interest if the funds are withdrawn before completing one year from the date of opening. 
  • For premature withdrawals after two years of opening the account, the returns will be calculated as per the NSC rates decreed by the Indian government. 

Conclusion

National Savings Certificate makes investment avenues available to people of low and average-income groups. It is similar to a savings bond and is an appropriate savings option for risk-averse investors. 

With decent returns and a minimum investment amount of INR 1000, NSC has made investment accessible to millions of Indians across all economic strata. Furthermore, the simple account opening procedure makes this banking service available to people even with minimal literacy. 

FAQs

What are the poignant features of NSC certificates?

Some poignant features of the NSC scheme are that there is no maximum limit on investment amount and the maturity period is five years. However, the minimum investment amount is INR 1000.

There are no eligibility criteria based on the age of the account holder. Hence, people from different age groups can invest in this scheme to benefit.

What are the tax benefits of NSC schemes?

The principal invested and the interest earned for the first four years of the policy are exempt from taxes up to INR 1.5 lakh under section 80C of the Indian Income Tax Act. However, the interest earned in the last year or fifth year is subject to tax deductions.

Is TDS deducted from NSC investments?

No TDS is applicable on the interest earned through NSC. However, tax is deducted from the interest earned in the last year.

Will I earn interest if I close the NSC account before maturity?

Your returns will not be forfeited if you close the savings scheme after two years of opening the account. However, no interest will be accrued if you go for premature withdrawal even before the account completes one year from the opening date.

Can an NRI invest in NSC schemes?

National Savings Scheme investments are targeted at Indian citizens. However, this savings scheme is not available for non-resident Indians or HUFs.

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