National Savings Certificate – Interest Rates and Tax Savings| North Loop Official Blog
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08 Dec 2020

National Savings Certificate – Interest Rates and Tax Savings

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Introduction -

The National Savings Certificate is a tax saving investment instrument that you can purchase from any post office. Since it is a fixed return and low-risk investment, it gets considered as a suitable option if you are a risk-averse investor or seeking to diversify your portfolio through fixed return investments. If you are a small to a mid-income investor, the National Saving Scheme can also be the right option to invest in while saving on income tax under Section 80C.

Who Should Invest in NSC?

Similar to post office FDs and Public Provident Funds, the National Savings Certificate offers guaranteed interest and capital protection. However, you can only invest in the National Savings Scheme India as a resident Indian. That means, if you are a Hindu Undivided Family (HUF), Trust, Private or Public Limited Company, or an NRI, you become ineligible to invest in the National Saving Certificate. Another point to remember is that, even though NSC offers fixed and guaranteed interest, it cannot deliver inflation-beating returns like tax-saving mutual funds or the National Pension Systems.

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Where can you buy it?

If you have a savings account with a Bank bank and access to internet banking, you can buy NSC certificates in e-mode. The other option available is the Passbook mode. Earlier, pre-printed copies of NSC certificates used to get issued by banks or post offices, but that got discontinued from 1st July 2016.

Documents required for investing in National Savings Certificate -

The documents required for investing in NSC are as follows -

The NSC application form
Proof of Identification - It can either be your Passport, PAN card, Voter ID, Driving license, or Government ID
Latest photographs
Proof of Address - Examples include electricity bill, telephone bill, bank statement etc.

Features and Benefits of NSC -

Interest Rates - The certificates earn an annual fixed interest of 7.9% pa that gets revised every quarter by the government.

Maturity Period - Though the scheme had two types of certificates earlier for a five-year and ten-year tenure, the latter got discontinued in December 2015. That means only NSC’ for five years are now available for subscription.

Tax-saving investment - The principal invested in NSC qualifies for tax-savings up to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961. As it is a government-backed saving scheme, the NSC offers beneficial tax saving options for investors. You can use the NSC calculator/NSC tax-exemption calculator to find out your tax savings. The NSC calculator/NSC tax-exemption calculator is easy to use and deducts the requisite amount of your investment from the total income. You can also calculate your interest or maturity amounts using the other types of NSC calculators.

Investment flexibility - There is no minimum or maximum limit for investing in NSCs, and you can start from as little as Rs.100. The flexibility of the initial investment amount makes it a coveted investment instrument for most investors.

Accessibility - The fact that the National Savings Certificate can get easily bought from any post office or bank on submission of the required KYC documents makes it an extremely accessible investment option. The method of transferring the certificate from one PO to the other or one person to another is also smooth as it does not impact the interest accrual/maturity of the original certificate.

Loan collateral - NSC certificates also get accepted as collateral or security for secured loans by most banks and NBFCs. After stamping the certificate, it gets transferred to the bank during loan disbursement.

Power of Compounding - The interest earned on NSCs gets compounded annually and reinvested by default. However, the amount becomes payable only at maturity.

Nomination - NSCs also provide the option of assigning a nominee. That allows any family member, including a minor, to inherit the investment in case of any unfortunate event.

Corpus on maturity - Since there is no TDS on NSC pay-outs, the entire corpus becomes available on maturity. The tax on the investment becomes payable while filing the annual income tax return or during the payment of advance tax.

Premature withdrawal - It is usually not possible to exit the scheme except under special-circumstances like the death of the investor, court order, or forfeiture by the pledgee, who is a Gazetted Government Officer.

Tax benefits for NSC investment -

Investment in NSC is exempt from tax up to a maximum limit of up to Rs.1.5 lakh annually under Section 80C of the Income Tax Act. Therefore, even though there is no maximum limit on the purchase of NSCs, the tax exemption on the investments has a specified limit. Additionally, the interest earned on the certificates for the first four years that gets reinvested or added back to the initial investment is also eligible for a tax break, subject to the overall annual limit of Rs.1.5 lakh. The interest earned in the fifth year, however, does not get reinvested and hence is taxable at the applicable slab rate.

Conclusion -

NSC is a secure and low-risk investment product that is suitable for you if you do not have much of a risk appetite. However, the returns on NSCs are considerably lower as compared to other investment options such as fixed deposits, mutual funds etc. But if you seek the safety of capital or want to diversify and balance your portfolio with a safe investment option, then NSCs can be an apt choice for you.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.