An Overview of National Savings Certificate (NSC)
National Savings Certificate (NSC) is a tax saving investment that can be purchased from any post office by an Indian Resident. Being a fixed return and low risk Government of India-backed investment, NSC is usually preferred by risk-averse investors or those seeking to diversify their portfolio through fixed return instrument. It is a savings bond that encourages subscribers (mainly small to mid-income investors) to invest while saving on income tax.
Who Should Invest in NSC?
Anyone who is looking for a safe investment avenue to save taxes while earning a steady income can opt for this scheme. The NSC offers guaranteed interest and complete capital protection. However, like most fixed income schemes, they cannot deliver inflation-beating returns like tax-saving mutual funds and National Pension System. The government has made it easily accessible for prospective investors by making it available in post offices. Let us also clarify on who cannot invest in this scheme, while at it.
Basically, the Government has promoted National Savings Certificate as a savings scheme for individuals. Hence, Hindu Undivided Families (HUFs) and trusts cannot invest in it. Furthermore, even non-resident Indians (NRI) cannot purchase NSC certificates. The scheme is open to only Indian individual citizens.
How much can invest in NSC?
The minimum investment to be made in NSC is Rs 100 and there’s no maximum limit on the invested amount. But the maximum tax deduction, you can claim under Section 80C stands at Rs 1,50,000. It is issued in various denomination of Rs 100, Rs 500, Rs 1000, Rs 5000, Rs 10,000 and an individual can buy any number of certificates of any denomination.
Some of the main features of National Savings Certificate are stated below-
No premature evaluation: You cannot withdraw the investments prematurely unless it is the case of death of the holder.
Various denominations: The certificate is available in various denominations including Rs 100, Rs 500, Rs 1000, Rs 5000 and Rs 10,000.
Minimum denomination: You can start your investment in NSC with a minimum of Rs 100.
No maximum limit: There’s no limit on the amount to be invested in NSC
Only for individuals: It’ s only meant for individuals and the entities like trusts, HUF, companies cannot invest in it.
An individual can avail the following benefits by investing in NSC-]
1. Almost risk free investment backed by the Government of India.
2. Flexibility due to low minimum investment requirement of Rs. 100 and no max limit.
3. You can claim deduction up to Rs 1,50,000 under 80C of the income tax act.
4. The certificates can be bought on behalf of the minors.
5. The interest earned on National Savings Certificate gets compounded and is reinvested which implies an increase in the invested amount without buying any extra certificates.
6. The certificates can be used as a collateral to avail loan from banks.
Modes of Holding of National Savings Certificate
The different modes of holding National Savings Certificate are as follows:
1. Single Holder Type certificate: Single holder certificate can be purchased by an investor for self or on behalf of minor.
2. Joint A Type certificate: In this case, the certificate is held by two investors with equal share of maturity proceeds.
3. Joint B Type certificate: This is also a joint holding certificate however the maturity proceeds are paid out to only one of the holders.
Also Read: NPS – National Pension Scheme
The following are the key eligibility criteria for making National Savings Certificate investments:
1. All resident Indians are eligible to invest in NSCs.
2. Non-resident Indians cannot purchase new NSCs. However, in case of resident subscribers of NSC becoming NRI prior to maturity of certificates, such NSCs can be held till maturity.
3. Trusts and Hindu Undivided Family (HUFs) cannot make NSC investments.
4. Karta of HUFs can make NSC investments only in his own name.
How to invest in National Savings Certificates
NSC can be bought from any India Post Office on submission of required KYC documents. Currently online purchase of NSC is not possible. The following are the key steps for making NSC investments :
1. Fill out the NSC application form. NSC application Form is available online as well as at all post offices.
2. Submit self-attested copies of required KYC documents. Carry originals for verification
3. Make the payment of the amount to be invested by cash/through cheque.
4. Once the purchase of certificates is processed NSCs of the applicable amounts are printed and can be collected from the post office.
1.) Completely filled out NSC Application form.
2.) Recent Photograph
3.) Identity proof – Aadhaar, PAN, etc.
4.) Address proof – Aadhaar, Voter ID, etc.
5.) Cash/cheque deposit of investment amount.
These documents can be submitted at any India Post Office to obtain NSC in applicable denominations.
Transfer of National Savings Certificate
NSCs can be transferred from one post office to another as well as from one person to another without impacting interest accrual/maturity of the original certificate. NSC allows the following transfer options to an investor :
a) Transfer from one post office to another can be made by filling out and submitting Form NC-32 at the post office which earlier issued the original certificate.
b) Transfer of National Savings Certificates can also be made from one holder to another by filling out Form NC-34 at the NSC issuing post office. This can be done only once till time of scheme maturity.
Loan Against National Savings Certificates
You may be eligible to obtain a loan against you National Savings Certificate investments subject to some key terms and conditions as follows:
1. Only resident Indians can apply for a loan against NSC.
2. A few leading private and public-sector banks currently offer this facility.
3. The margin applicable to loan against NSC depends on the time remaining till maturity.
4. Interest rate varies based on individual loan applicant as well as the bank offering the loan.
5. The loan tenure equals the residual maturity (time remaining till maturity) of the NSC used as collateral.
The above are just some generic features of loan against NSC, specific features such as margin, interest rate, tenure etc. tend to vary from one lender to another.
Issue of Duplicate National Savings Certificates
If the original NSC certificate has been lost, stolen, destroyed, defaced or mutilated, you can get a duplicate certificate issued. Just fill out Form NC-29 and submit it at the post office which issued the NSC that needs replacing. Key fields in the form include:
a) Details of certificate(s) such as – serial numbers, denominations, NSC issue, etc.
b) Date on which the certificates were purchased.
c) The reason for application of duplicate certificate also needs to be mentioned among other details.
NSC VIII has a lock in period of 5 years with premature withdrawal permitted only in specific cases such as:
1.) On the death of NSC holder.
2.) On forfeiture by a pledgee who is a Gazetted Government Officer.
3.) On the order of court for premature withdrawal of NSC
However, the conditions stated on the amount which you will get by closing NSC prematurely are stated below-
1.) If the certificate is withdrawn within a year of its issue, then you will receive only the invested amount, without any interest.
2.) If NSC is withdrawn between 1-3 year, then the interest paid will be only simple interest.
Tax benefits of NSC investment
Primarily, NSCs are tax saving investments as the principal amount invested allows tax deduction under Section 80C up to the Rs. 1.5 lakhs limit. However the interest earned on NSCs feature a different tax treatment. The interest earned annually from NSC (for the first four years) is deemed to be reinvested hence exempt from tax and also eligible as a further deduction under Section 80C (subject to the overall annual limit of Rs 1.5 lakhs). However, the interest earned in the 5th year is not re-invested hence taxable as per the investor’s applicable slab rate.
The subscriber of the National Savings Certificates (NSC) can choose any individual as a nominee at the time of buying the certificate in Form 1 or before NSC matures in Form 2.
In case of the death of the holder, the nominee becomes entitled to receive the investment proceeds.
In case of death of the holder, the nominee shall be entitled to-
1. Encash the certificate
2. Divide the amount in proper denominations in favor of individual nominees.
However, the right of the nominee comes into play only in case of death of the original holder.
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