National Savings Certificate
NSC is a tax-saving instrument issued by the government via Indian Postal services.The NSC certificates were issued in 1950s, after India’s independence, and aggressively promoted by the Indian government to raise debtto get the economy back on track.Today, NSC is one of the most preferred investments among conservative investors. It is considered as a safe haven investment due to capital protection, guaranteed returns and tax exemption under section 80C of the Income Tax Act. Being a fixed return product with sovereign-backing, NSC is mostly preferred by risk-averse investors or those who want to diversify their portfolio through fixed return instruments.Its primary objective is to encourage small and medium savings among individual investors.
The NSC interest rates are subject to periodic change by the Finance Ministry. The current interest rates for Q4 FY 2018-19 stand at 8%.This was kept unchanged from the previous quarter. The rates were hiked from 7.6% to 8% before that in October 2018. The interest on NSC is compounded and accrued yearly but is paid out only at maturity. The interest is essentially reinvested back into the scheme.
There were two types of NSC Certificates introduced initially, based on their tenure and the time they were released by the Post office.
NSC Issue VIII
These certificates have a 5-year maturity period. Everyone can invest in these, except Hindu Undivided Families (HUFs) and Trusts. They come in denominations from Rs. 100 to Rs. 10,000. The interest rates are at 8%. This issue is currently available.
NSC Issue IX
The NSC IX certificates had a 10-year maturity and slightly higher interest rate than NSC Issue VII. However, these have been discontinued by the government.
There is no upper limit on investment in both issues.
Advantages of NSC
There are several good reasons for investing in NSC. Some are listed below:
- Guaranteed returns with capital protection: It is a sovereign-backed product with a fixed interest rate, and hence there is virtually no risk to this investment.
- Tax exemption under 80C: The amount invested in NSC is eligible for tax exemption under 80C up to ₹1.5 lacs.
- No TDS deduction: The interest accrued on NSC is paid out only at the end of the year along with the initial investment, and there is no TDS on this amount.
- Small multiple available: The minimum denomination for NSC investment is only ₹100, which is apt for small investors. Also, there is no maximum limit for investment. Thus, there is a lot of flexibility in terms of amount. However, tax exemption is available only up to ₹1.5 lacs. Other multiples available are ₹500, ₹1,000, ₹5,000 & ₹10,000
- Premature withdrawal facility: One can withdraw the investment before maturity in certain cases like death of holder, court order, etc.
- Loan against NSC: These certificates can be used as collateral for banks and NBFCs for securing a loan.
- Nomination facility: In case of death of the NSC holder, he can name a nominee who would inherit the certificates. Nominee can be a minor also.
How to buy NSC
After July 2016, it has become possible to buy NSC in electronic mode with the bank or post office where one has a savings account. The certificates can now be held in e-mode, just like electronic Fixed Deposits. However, this would require to have internet banking facility.
In case of physical certificates, you need to follow these steps:
- Fill up the NSC application form with all the relevant information. This is available at any bank or post office.
- Submit the required documents.
- Provide nominee details.
- Decide the amount that you want to invest and make the purchase.
Following is the list of documents required for purchasing NSC
- NSC Application form duly filled
- Any original ID Proof, such as Passport, Driving Licence, Voter ID, Aadhaar card, etc.
- Address proof, such as Passport, electricity bill, phone bill, etc.
- Cheque of the amount to be invested
- Who can invest in NSC?
Anyone looking for guaranteed returns along with capital protection can invest in NSC. However, NSC is not a good option if one is looking for earning inflation-adjusted returns, as they rarely beat inflation. NSC is available only to Indian resident individuals for investment. It was introduced by the government of India to encourage saving habit among the individuals. This means that HUFs and trusts are not eligible to invest in NSC. NRIs are also not eligible.
- What is the tax treatment of NSC?
The initial investment in NSC is tax free to the extent of ₹1,50,000 under 80C. Annual interest accrued on NSC is reinvested in the scheme, and hence, is also tax-free. It is only in the last year that any income tax will be payable. This is because the interest that you earn in the last year will not be reinvested,but paid out. In this case, the investor will declare the final year’s interest as ‘income from other sources’. There is no TDS on NSC. Hence,the entire maturity value of the certificates will be handed to the investor, and the payment of applicable taxes will be his responsibility.
- Is it possible to transfer NSC ownership?
Yes, one can transfer the ownership of NSC to another person. For this the investor would need a written declaration of consent from the postmaster of the post office where he has opened the account. Certificates can be transferred from:
- Holder to nominee (in case of death).
- From one joint holder to another.
- Holder to court (if ordered by court).
- Can two or more people own NSC certificates jointly?
Two people can own NSC certificates jointly, but not more. There are three types of joint certificates, — Single holder Type, Joint A Type & Joint B Type.
Single holder certificates, as name suggests, can be issued only to one individual, but placing a nominee is allowed. However, the primary decision maker regarding the certificates will be the holder only.
Joint A Type certificates are issued to 2 people, and on maturity, both receive the corpus together. For any action related to NSC like cancellation or transfer or certificates, changing of nominee, etc., signatures of both holders are required.
Joint B Type certificates are similar to Joint A Type certificates, except that at the time of maturity, the corpus is withdraw-able by any one of the Joint Holders, and not necessarily both.
- What are the rules of premature withdrawal of corpus in NSC?
NSC certificates have a predetermined lock-in period of 5 years. However, premature withdrawal is possible in certain emergency cases like the following
- Death of the holder
- Order of the court
- A Gazetted Officer pledges for the certificates to be forfeited in compliance with the rules.
If the withdrawal is before one year, then there will be no interest paid. If the withdrawal is after one year, interest will be paid, but the face value of the certificate will be paid after discounting.
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