Urban Money

NSC - National Savings Certificate

National Savings Certificate (NSC) is a fixed income scheme that can be accessed or opened at any post office in India. It's an Indian Government savings bond mainly used for income tax savings and small savings investments in India.

NSC aims to encourage subscribers to make small or medium savings and avail of the tax benefits rendered on the same. Since the Indian Government promotes this scheme, investment risk is pretty low.

National Savings Certificate can be accessed at all NSC post offices in India. Due to the considerable number of post offices in India, it is easy to access NSC everywhere.

Given below are some key particulars of this scheme:

NSC – Key Information

Interest Rate 6.8% per annum
Lock-in Period 5 years
Minimum Investment Rs. 1,000
Tax Benefit Up to Rs. 1.5 lakh under Section 80C
Risk Profile Low-risk

Primarily, NSC was launched for individuals. Hence, HUFs (Hindu Undivided Families) and Non-Resident Indians (NRIs) can't apply for this scheme. Also, only Indian citizens can invest in NSC.

Interest Rate on National Savings Certificate

The National Savings Certificate interest rate stands at 6.8 percent per annum.

Modes of Holding of National Savings Certificate

Typically, there are three modes of holding NSC certificates. They are as follows:

Single Holder Type Certificate

As the name suggests, only one person can hold a single holder type certificate. Such a certificate is issued only to an individual. However, the holder can also appoint nominees for the NSC.

Joint 'A' Type Certificate

As it's a joint certificate, it is issued to two adult holders. When the certificate approaches maturity, the amount will be payable to both the holders. Either the NSC holders or both the holders can operate Joint A Type Certificate.

Joint 'B' Type Certificate

Similar to the Joint A Type certificate, Joint B Type Certificate is also issued to two adult holders. The only differentiation here is the payment of maturity value, which is payable to only one of the two holders.

NSC Eligibility Criteria

If you have pledged to invest in the National Savings Certificate scheme, you must meet the following eligibility criteria:

  • You must be an Indian resident.
  • There are no age criteria to purchase the certificate.
  • If you are an NRI, you cannot invest in an NSC.
  • Under NSC VIII Issue, Trusts and HUFs are not allowed to invest in the scheme.
  • Investment can be made with other adults, or individuals can also opt to buy an NSC on behalf of a minor.

Documents Required for Investing in NSC

Your application for opening an account with NSC will be rejected if you don't furnish the required documents with valid identity proof. The list of documents is as follows:

  • Duly filled NSC application form
  • Original identity proofs, such as the Voters ID or Driving Licence
  • Photographs
  • Address proof
  • Signature of the witness at the time of purchasing the NSC certificate
  • Demand Draft, Cash or Cheque in favour of the postmaster from the place where NSC is to be purchased.

NSC Features

As aforementioned, NSC is a scheme operated by the Indian Government. Hence, it is a low-risk product. Besides this, the scheme has different features as follows:

  • Minimum Amount: The certificate can be purchased for a minimum amount of Rs. 100. Different denominations that individuals can use to purchase are Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000, and Rs. 10,000. The scheme allows you to start with small investments and increase the amount later when feasible.
  • Maturity Period: NSC offers a lock-in period of 5 years and ten years.
  • Interest Rate: Currently, the interest rate on NSC is 6.8%, which has been reduced from 7.9%. The rate of interest is compounded annually. Nevertheless, the interest will be paid only upon maturity.
  • Nomination Facility: Investors can use the nomination facility to nominate nominees, including family members. Individuals can also select minors as their nominees. If the investor passes away in the middle of the NSC tenure, the nominee may inherit the scheme.
  • Loans Against NSC: The scheme allows investors to avail of loans against NSC, where NSC can be used as collateral or security.
  • Transfer of Certificate: You can transfer the NSC certificate from one post office to another. The scheme also offers a provision for the transfer of certificates from one person to another. Nevertheless, the certificate stays the same. The new owner's name must be mentioned on the certificate, and the name of the old owner will be rounded.
  • Purchase of NSC: After submitting the documents, you can purchase the scheme at any post office.

National Savings Certificate Investments Benefits 

The following are some of the major benefits of investing in the NSC scheme:

  • Since the Government of India backs the NSC scheme, investment in National Savings Certificates is almost risk-free.
  • Since NSCs are available at all post offices in India, purchasing them is easy.
  • NSC investment offers you the flexibility of investing a minimum amount of Rs. 1,000 and has no maximum limit.
  • Among the fixed income instruments, these investments render one of the highest rates of return.
  • NSC offers tax deduction benefits on investments of up to Rs. 1.5 lakh annually.
  • Investors can purchase these certificates in the name of minors as well.
  • NSC certificates offer you the facility of transferring the certificates to another family member (nominated by the investors) if the investor dies.

How to Invest in National Savings Certificates?

You can buy a National Savings Certificate from any post office in India by simply submitting the KYC documents. Currently, NSCs cannot be purchased online. Follow the steps below to invest in the NSC scheme:

Step 1: Visit your nearest office branch and fill out the NSC application form.

Step 2: Self-attest all documents, including KYC, and submit them. You must also carry the original documents and present them for further verification.

Step 3: Pay the initial investment amount in cash or through a cheque.

Step 4: Once your application process is processed, NSCs of the application amounts will be printed. You can collect it from the post office.

Tax Benefits Provided by NSC

If you are a subscriber and invest in NSC, an investment of up to Rs. 1.5 lakh in the NSC can earn you a tax rebate under Section 80 of the Income Tax. Moreover, the interest you earn on the certificate will also be added back to the initial investment and eligible for a tax break.

For example, if you buy certificates worth Rs. 1,000, you will qualify for a tax rebate on that initial investment amount in the first year. However, a tax deduction on the NSC investment and the interest earned in the first year can also be claimed in the second year. The interest is summed up with the original investment and compounded annually.

Transfer of National Savings Certificate

The NSC certificate can be transferred from one person to another and from one post office to another. The most significant characteristic of this transfer is that it won't even impact the interest accrual or maturity of the original certificate. NSC allows the following transfer options to an investor:

  • The applicant can transfer the certificate from one post office to another by submitting the 'Application for Transfer of Savings Certificates' form at the same post office which earlier issued the original certificate.
  • If you want to transfer a certificate from one holder to another, you must fill out the 'Application for Transfer of Savings Certificate' form from Person to Person under certain special conditions form at the NSC issuing post office. The 'Transfer of National Savings Certificates' from one person to another is possible only once during the scheme maturity.

Loan Against National Savings Certificates

As NSC is backed by the government, it is one of the safest and most secure investment choices you can make. While applying for the loan, you can use an NSC certificate as your collateral.

NSC not only helps secure your future but also aids in meeting pressing needs. NSC certificate holders can obtain loans against NSCs for various purposes, ranging from personal to business. Most banks or financial institutions don't even need reasons to avail of loans unless they meet speculative interests.

One can get loans against NSCs for household requirements, business improvement, education, emergency medical expenses, etc.

So, if you seek a loan against NSC, you must consider the following:

  • You must be an Indian resident
  • The interest rate rendered on NSC investment varies depending on the bank offering the loan and the individual loan applicant. 
  • The margin applicable to a loan against NSC relies on the time remaining until maturity.
  • The loan maturity equals the residual maturity (time remained until maturity) of the NSC certificate used as collateral.
  • You can approach a few public-sector banks and private companies that offer this facility.

Issue of Duplicate National Savings Certificates

In case you have lost or misplaced your original NSC certificate, or it has been mutilated, defaced or destroyed, you can request a duplicate certificate. You must fill out the Duplicate Savings Certificates form and submit it at the same post office that issued the original one. The key particulars in the form include:

  • The date on which the applicant purchases the certificate
  • Details of the certificate include the serial number, NSC issue, denominations, etc.
  • The reason to apply for a duplicate certificate must also be mentioned along with other details as required.

Premature Withdrawal

NSC VIII allows a lock-in period of 5 years with a facility of premature withdrawal permitted only in specific cases, including:

  • On the demise of the NSC holder
  • On the court's order for premature withdrawal of NSC
  • On denial by a pledgee who is a Gazetted Government Officer

Comparing NSC with other Tax-Saving Investments

NSC is a tax-saving investment choice available under Section 80C of the Income Tax Act, 1961. The other popular options include PPF (Public Provident Fund), NPS (National Pension System), ELSS (Equity Linked Savings Schemes) and Tax Savings FD (Fixed Deposits). However, they differ in terms of interest rates, lock-in period, and more.

The table given below compares NSC with other tax-saving investment schemes:

Investment

Interest

Lock-in Period

Risk Profile

NSC 6.8% p.a. 5 years Low-risk
PPF 7.1% p.a. 15 years Low-risk
ELSS funds Market-linked, historical returns represent 12% to 15% p.a. 3 years Market-related risks
FD 4% to 6% p.a. 5 years Low-risk
NPS Market-linked, historical returns represent 8% to 10% p.a. Till retirement Market-related risks

Frequently Asked Questions (FAQs)

How to buy NSC?

To buy an NSC, you must visit your nearest post office branch. Submit the duly filled NSC application form and attach self-attested copies of the documents and proofs demanded by the Post Office.

At the time of verification, carry the original documents. Pay your investment in cheque or cash or demand draft. Once your application is processed, you will receive an acknowledgement of the same with the initiation of your NSC account.

How can I get a National Savings Certificate online?

Currently, you cannot obtain an NSC certificate online.

What are the NSC certificate denominations?

Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, and Rs. 10,000 are the denominations for the NSC certificate.

What is the NSC interest rate?

The interest rate for the NSC certificate is 6.8%.

Is there a lock-in period with investment in NSC?

Yes, the lock-in period for NSC investment is five years.

NSC comes under which Section?

NSC qualifies for tax deductions under Section 80C.

Which is better? NSC or KVP?

NSC and KVP are two entirely different schemes with different objectives. While NSC is a fixed-income scheme aimed at helping people make small and medium savings, KVP is Kisan Vikas Patra which encourages long-term financial discipline in people.

How to open an NSC account in the post office?

Simply visit your nearest post office branch, fill out the NSC application form, and submit the self-attested copy of the documents and your KYC. Present your original documents at the time of verification. Once it is validated, you will be notified of the same.

How to calculate NSC interest?

Either you can use the NSC interest calculator, or you can use the formula given below:

R = A x 100/P x T

Here P is the principal amount you have invested, A is the maturity amount, T is the lock-in period, and R is the interest rate.

Which is better? NSC or PPF?

Both NSC and PPF are schemes run and promoted by the Indian Government. So, both are low-risk investments. Both of them have their own pros and cons. While NSC has an interest rate of 6.8%, PPF offers an interest rate of 7.1%. The lock-in period for NSC is five years, while that of PPF is 15 years. The interest in NSC is taxable, while in PPF, it is free.

What is the minimum amount for NSC?

The minimum amount for NSC is Rs. 1,000.

For how many years can you invest in NSC?

It is for five years.