National Savings Certificate

National Savings Certificates (NSC) are one of India’s most trusted and popular fixed-income savings schemes, providing guaranteed returns. If you're looking for a safe and reliable investment avenue, NSC could be a suitable choice for you. Below, we'll break down everything you need to know about NSC, including its features, benefits, and how it compares to other investment options.

What is National Savings Certificate?

The National Savings Certificate (NSC) is a government-backed fixed-income instrument introduced by the India Post. The scheme is designed to encourage savings among the public, offering both security and tax benefits. NSC is available for purchase at India Post offices across the country, making it easily accessible for investors of all types.

Key Features of NSC

• Fixed Returns: The returns on NSC are predetermined and fixed at the time of investment. This makes it a stable and predictable option for investors looking for certainty.
• Tenure: NSC comes in two main tenures – 5 years and 10 years. The interest is compounded yearly but paid at maturity.
• Tax Benefits: NSC qualifies for tax deductions under Section 80C of the Income Tax Act, up to a limit of ₹1.5 lakh per year. The interest earned on the NSC is also eligible for tax benefits, but it is taxable at the time of maturity.
• Minimum Investment: The minimum investment in an NSC is ₹100, with no maximum limit. However, the amount is subject to eligibility under the tax deduction limit.
• Eligibility: Indian residents, including minors, can invest in NSC. However, NRIs and Hindu Undivided Families (HUFs) are not eligible.
• Transferability: NSCs are transferable. You can transfer them to another person during the investment period.
• Nomination: You can add a nominee while purchasing the NSC. In case of your demise, the nominee will receive the proceeds from the certificate.

How Does NSC Work?

NSC works by offering a fixed interest rate that gets compounded yearly. However, the interest is not paid annually. Instead, it accumulates and is paid out at maturity. The scheme also allows you to reinvest the interest, which helps in increasing the overall returns at the end of the term.

The following example illustrates how NSC works:

• If you invest ₹1,000 in NSC with an interest rate of 7%, compounded annually, at the end of the year, the interest amount will be ₹70. This interest will be added to the principal amount for the next year.
• The total amount of ₹1,070 will earn another 7% in the next year, and so on, till the maturity date.

Interest Rates on NSC

The interest rate on NSC is determined by the government and is subject to change every quarter. As of now, the interest rate on the 5-year NSC is 7% per annum, compounded annually.

Since the interest is compounded annually, it helps investors to accumulate a significant corpus over time. Additionally, the 10-year NSC offers similar interest rates, but the overall returns are higher due to the longer duration.

Pros of Investing in NSC

• Safe Investment: As a government-backed scheme, NSC offers a high level of security, with no risk of default.
• Tax Savings: You can reduce your taxable income by investing in NSC, making it an attractive option for individuals looking to save taxes.
• Assured Returns: NSC provides fixed returns, which means you don’t have to worry about market fluctuations. It’s ideal for conservative investors.
• Easily Accessible: NSC can be purchased at post offices, making it accessible to the masses, especially in rural areas.
• Long-Term Benefits: With long-term tenures (5 years and 10 years), NSC helps build a disciplined savings habit and accumulates a good corpus over time.

Cons of Investing in NSC

• Tax on Interest: While NSC offers tax deductions under Section 80C, the interest earned is taxable, which reduces your overall returns.
• Illiquidity: NSC has a lock-in period of 5 to 10 years, which means your investment is not liquid, and you cannot access the funds easily before the maturity date.
• Lower Returns Compared to Other Instruments: Although safe, the returns on NSC are relatively lower than equities or mutual funds in the long run. Therefore, it may not be ideal for those seeking high growth.
• No Partial Withdrawals: Unlike some other fixed-income instruments, NSC doesn’t allow partial withdrawals.

How to Invest in NSC offline?

Investing in NSC is a straightforward process. Here's a step-by-step guide:

• Visit the Nearest Post Office: You can visit the nearest India Post office to purchase NSC.
• Fill Out the Application Form: The post office will provide an application form for NSC. You need to fill it out with the required details.
• Submit Identification Proof: Along with the application, submit your identification proof (e.g., Aadhaar card, passport, etc.).
• Make the Payment: You can pay via cash, cheque, or demand draft at the post office.
• Receive Your Certificate: After processing your application, the post office will issue the NSC in your name.

How to Invest in NSC Online? 

The process of applying for an NSC online can be completed by following these steps:

• Log in to the Department of Posts (DOP) internet banking portal.
• Under the 'General Services' section, select the 'Service Requests' option.
• Click on 'New Requests' and select the 'NSC Account – Open an NSC Account (For NSC)' option.
• Enter the desired deposit amount and select the appropriate debit account linked to the Post Office savings account.
• Review and accept the terms and conditions by selecting the 'Click Here' option.
• Enter your transaction password and click 'Submit'.
• Upon successful submission, a deposit receipt will be generated, which can be downloaded for your records.
• Log in again to the 'Accounts' section to view the details of your newly opened NSC account.

NSC vs Other Fixed Income Investments

Documents Required to Apply for NSC

To successfully apply for a National Savings Certificate (NSC), the following documents must be provided:

• The duly completed NSC application form.
• A valid government-issued identification proof, such as a Passport, PAN Card, Voter ID, Driver's License, Senior Citizen ID, or any other recognized government ID for verification purposes.
• A recent passport-sized photograph of the investor.
• Proof of address, which may include a Passport, telephone bill, electricity bill, or bank statement. Additionally, a cheque, along with a certificate or an ID card issued by the Post Office, must be submitted.

Maturity Period and Premature Withdrawal of NSC

Typically, the funds invested in an NSC cannot be withdrawn before the completion of its 5-year maturity period. However, under certain circumstances, premature withdrawal is permitted. The conditions under which early withdrawal is allowed include:

• In the event of the certificate holder’s demise.
• In cases of certificate forfeiture, provided the pledgee is a Gazetted Government Officer.
• If a court of law orders the withdrawal of the invested amount.

To initiate premature withdrawal, the certificate holder must submit the requisite supporting documents.

Who Should Invest in NSC?

The National Savings Certificate (NSC) is an ideal investment option for individuals seeking a safe and reliable avenue to earn fixed returns, while also benefiting from tax-saving advantages. NSC guarantees both the protection of principal and the payment of interest, making it an attractive choice for conservative investors. While NSC provides steady returns, these are typically lower compared to high-growth investment options such as tax-saving mutual funds or the National Pension System, which may outperform NSC in the long term.

This scheme is exclusively available to Indian residents. Non-Resident Indians (NRIs), Hindu Undivided Families (HUFs), and trusts are ineligible to invest in NSC.

How to Obtain a Duplicate NSC

In the event that your National Savings Certificate is lost, damaged, or destroyed, you may apply for a duplicate certificate through the Indian Post Office. A duplicate NSC can be requested under the following circumstances:

• If the certificate is lost or stolen.
• If the certificate is damaged or destroyed due to incidents such as fire, water damage, or other unforeseen events.
• If the certificate is mutilated to the extent that it is no longer usable as proof of investment.

Taxation on NSC

Although NSC provides tax benefits under Section 80C, it is important to understand the tax implications:

• Tax Deduction: Your investment in NSC is eligible for a tax deduction under Section 80C, reducing your taxable income.
• Interest Taxation: The interest earned on NSC is taxable, and the tax is deducted at source (TDS) on the interest income at the applicable rates.
• TDS: The post office does not deduct TDS on the interest earned from NSC. However, the investor is liable to pay taxes on the accrued interest.
• Capital Gains Tax: Since NSC has a fixed tenure, the capital gains tax implications are not relevant. But the interest is added to the total income and taxed according to the applicable tax bracket.

Frequently Asked Questions (FAQs) on National Savings Certificate

• How can I verify my NSC certificate online?
  To verify your NSC certificate online, you need to inform the Post Office that you wish to use the online passbook service. The Post Office will provide you with the necessary credentials to access the online account. After logging in, you can view all transaction details related to your NSC. Please note that this service is available only at some Post Office branches.
• Can I take a loan based on my NSC investments?
  Yes, NSC investments can be used as collateral to secure loans from banks or government organizations.
• What is the minimum amount I can invest in NSC?
  The minimum investment required to start an NSC is Rs. 1,000.
• Is there a denomination smaller than Rs. 100 for NSC?
  No, the smallest denomination available for NSC is Rs. 100, meaning all investments must be in multiples of 100.
• What are the main features of NSC Issue VIII?
  NSC Issue VIII has no upper limit on investment, offers an interest rate of 7.7% per year, and provides tax benefits under Section 80C up to Rs. 1.5 lakh. The maturity period is 5 years, and it is available in denominations starting from Rs. 100.
• What is the maturity period and interest rate for NSC Issue IX?
  NSC Issue IX had a maturity period of 10 years and an interest rate of 8.8% per year. This issue was discontinued by the government after April 1, 2013.
• Can a trust or HUF invest in NSC?
  No, trusts and Hindu Undivided Families (HUFs) cannot invest in NSC. Only individuals can participate in this scheme.
• Is tax deducted at source (TDS) on the interest earned from NSC?
  No, there is no TDS on the interest earned from NSC. The tax is calculated on the total interest earned in the last year and must be declared in your tax return.
• What are the main features of NSC Issue IX?
  NSC Issue IX was available in denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000, and Rs. 10,000. It offered an interest rate of 7.7% per year and a 10-year maturity period. However, it has now been discontinued by the government.
• How do I apply for NSC online?
  Currently, NSC cannot be applied for online. You must visit your nearest Post Office to fill out the NSC application form and submit the required documents.
• What is the lock-in period for NSC?
  Yes, NSC comes with a lock-in period equal to the maturity period, which is 5 years for Issue VIII. Early withdrawal is possible under specific circumstances.
• Who can buy a single-holder NSC certificate?
  A single-holder NSC certificate can be purchased by an adult for themselves or on behalf of a minor.
• Can armed forces personnel invest in NSC?
  Yes, armed forces personnel can invest in NSC. In the event of death, the nominee or legal heir can receive the full investment amount.
• Can I change or cancel my nomination for NSC?
  Yes, you can change or cancel your nomination at any time using Form 3 and by paying a small fee of Rs. 5.
• What is the maturity period and interest rate for NSC Issue VIII?
  NSC Issue VIII has a maturity period of 5 years and an interest rate of 7.7% per year, which is applicable from April 1, 2013.
• What is the interest rate and maturity period for NSC Issue VIII?
  NSC Issue VIII has a maturity period of 5 years and an interest rate of 7.7% per annum. There is no TDS, and it provides tax benefits under Section 80C.
• Can I take NSC under a joint holding option?
  Yes, you can purchase an NSC under the joint holding option, provided you are not a trust or the Karta of an HUF.
• What section of the Income Tax Act covers NSC?
  NSC falls under Section 80C of the Income Tax Act, which allows you to claim tax deductions on the amount you invest in NSC.
• Can Non-Resident Indians (NRIs) or Hindu Undivided Families (HUFs) invest in Kisan Vikas Patra?
  No, only resident individuals can invest in KVP. NRIs and HUFs are not eligible to participate in this scheme.