What Is National Savings Certificate (NSC)?
National Savings Certificate NSC scheme is a fixed income scheme just like fixed deposits. It is one of the popular financials savings instruments in India which can be opened at any Post Office (not banks). NSC scheme is backed by Government of India therefore it guarantees returns.
Apart from fixed returns an investor is also eligible for a tax benefit. NSC investments up to Rs 1.5 lakhs is exempt from tax under Section 80C of the Income Tax Act. NSC come with a lock in period of 5 years and earn fixed interests.
The current rate of interest from 01 April,2023 on post office NSC Scheme is 7.7% p.a. compounded half yearly, which means you get the interest on the deposits made 2 times in a year. It is also a secure and low-risk instrument.
The minimum deposit is Rs 1000 whereas there is no maximum limit for investment in Post Office NSC Scheme. Moreover there is no TDS (Tax Deduction at Source) for NSC investments.
Prior to Coronavirus pandemic i.e. before April-2020 the interest rates on NSC scheme were at 8% and was much better, may be later this year it may come again to the same level.
You can open as many Post Office NSC Account as you want there is no limit, although deposit is limited to one time as a lumpsum investment for 5 years, for example Rs.5000 can be invested in the scheme in a particular month and after few days, months or year or more you can again open another NSC account at nearest post office.
We will going to talk in detail about the National Savings Certificate and how it works? in this post and you will have all information, but you can also use moneycontain Post Office NSC Calculator and calculate the NSC Maturity amount in just 1 step here.
Why Invest in National Savings Certificate (NSC) Scheme?
Check out below features of the NSC to know more:
- Low Investments: NSC accepts investments as low as Rs 1000 hence making it easy for everyone to invest.
- Fixed Returns: NSC guarantees return to its account holder as it is backed by GOI.
- Short Maturity Period: Post Office NSC schemes comes with a maturity period of 5 years, making it feasible
- Compounding Effect: The Interest earned on NSC scheme during the investment tenure is reinvested into the scheme by default, hence keeping compounding effect.
- Tax Implication: The account holder of NSC gets the entire amount upon maturity. No TDS on NSC payouts gets deducted. However, the investor should pay the applicable tax upon receiving the amount. You can consider the entire interest income you have earned over the years as income in the last year and get taxed under your income tax slab rate. Also get an exemption of upto Rs.1.50 Lakhs under section 80C of IT.
- Loan as Collateral: NSC helps you in taking loans by having the NSC certificate as loan collateral in case you need it.
- Exit Option: Although, Premature withdrawals are not accepted for Post Office NSC investments. However, in exceptional cases like the death of investors or by court order, early withdrawals are acceptable. Upon maturity of NSC you can redeem the amount from any Post Office in either hard cash or bank transfer.
- Nominee Facility: The Post Office NSC scheme allows the investor to nominate any family member (even a minor). The nominee can inherit the returns in an event of the investor’s unfortunate demise.
How To Open National Saving Certificate (NSC) Account?
First of all only individual Indian residents can invest in NSC. Non-Resident Indians (NRI), Hindu United Families (HUF), and trusts cannot invest in the post office national savings certificate scheme.
The following types of accounts can be opened under the NSC Scheme, namely:-
- Single Holder Type Account
- Joint A- Type Account
- Joint B – Type Account
(a) A Single Holder Type Account may be opened by an adult for himself, or on behalf of a minor or a person of unsound mind of whom he is the guardian; or by a minor who has attained the age of ten years;
(b) Joint A- Type Account may be opened jointly in the names of upto three adults payable to all the holders jointly or to the survivor or survivors;
(c) Joint B-Type Account may be opened jointly in the name of upto three adults payable to any of the account holders or to the survivor or survivor
Eligibility: You need to be a resident Indian to buy the NSC
Entry age: No age is specified for account opening, For a minor to open for account himself is 10 years, Parents can open account for minors of any age
No. Of NSC Accounts: One can open any no. of accounts under NSC scheme
Nomination Facility: Available
There are two types of NSC certificates, NSC VIII Issue and NSC IX Issue.
- NSC VIII Issue – The VIII Issue comes with a maturity period of 5 years. The current interest rate is 7.7% per annum.
- NSC IX Issue – The IX Issue comes with a maturity period of 10 years. This issue has been discontinued since December 2015.
To open an NSC scheme, an investor needs to visit the nearest Post Office branch. The process is very much similar like opening a bank account. You would need to fill this form at post office also if you want to make a nominee, enter his/her details and get a witness signature.
For verification purpose show your original ID and Address proofs. Once the documents are verified you can pay the investment amount either via cash, demand draft, or cheque in favor of the postmaster.
At last when the process is completed you can ask for the certificate for the scheme, which can be used at various places such as for loan or collaterals.
Is There any Option To Buy NSC Online?
No you cannot buy National Savings Certificate online at present. You will be required to visit the nearest Post Office branch of your to fill out the NSC application form and submit it their in order to open an NSC account.
However, you can check your NSC certificate online, to do that you will need internet banking credentials from post office. You have to opt for the online passbook service for NSC account by informing the Post Office branch regarding the same.
Then, you can log into the account to view all the transaction details on your NSC account. This facility is available only at the selected branches of Post Office.
Can I Withdraw Money From NSC Before Maturity?
NSC comes with a lock-in period of 5 years, i.e. it cannot be withdrawn before maturity. As exemption, NSC can be prematurely withdrawn only in the following circumstances:
- On the death of a single account, or any or all the account holders in a joint account
- On forfeiture by a pledgee being a Gazetted officer
- On order by court
Can I Transfer NSC Account ?
An NSC account may be transferred from one individual to another, subject to the condition that the transferee is eligible to open an account under this Scheme, in the following cases, namely:-
- On the death of account holder : In case of a single account or on the death of all the account holders in a joint account, the amount shall be transferred to the legal heirs or the nominees as the case may be.
- On the order of the court: The account shall be transferred from the account holder to the court or to any other individual as per the orders of the court;
- On pledging: A blind or a person with physical infirmity making him incapable of operating the account may pledge his deposit through any literate individual whom he authorises for this purpose.
- In the event of the death of any of the account holders in a joint account, the account shall be transferred in the name of the surviving account holder or account holders, as the case may be.
Can I Get Loans From NSC ?
Yes, An NSC Account may be pledged or transferred as security, on an application made by the depositor in Form-3 supported with acceptance letter from the pledgee.
You can pledge the NSC certificate only to:
- The President of India/Governor of the State.
- RBI/Scheduled Bank/Co-operative Society/Co-operative Bank.
- Corporation (public/private)/Govt. Company/Local Authority.
- Housing finance company.
National Savings Certificate Interest Rates:
The interest on NSC is 7.7% p.a. for the current quarter 01 April, 2023 onwards. The interest rate for NSC is announced by the Ministry of Finance every quarter which are subject to change.
Returns from NSC are guaranteed, and it is compounded annually and paid at the time of maturity.
How Much Tax Can I save Under NSC Scheme?
One of the major benefit of Post Office National Savings Certificate is tax exemption under Section 80C of the Income Tax Act. Which means the interest earned during the tenure is added to the initial investment and is qualified for tax exemption as well.
Suppose you make an investment of Rs 100,000 in NSC, at 7.7% p.a. for 5 years, In this case, the maturity value is Rs. 14,59,033. The investment is INR 10 Lacs. The interest earned is Rs. 4,59,033, This interest is taxable at the your income tax slab rate.
In simple terms there is no tax on the principal investment amount of Rs.10 lacs but the interest earned during tenure is taxed based on your income tax slab.
Let say you fall under 5% of tax slab rate than 5% of 4,59,033 is Rs.22,952, you need to pay this amount, However there are various ways you can easily counter this if you already have loan or insurance etc.
There is no Tax Deduction at Source (TDS) for NSC investment payouts. While filling for ITR (Income Tax Return) you can show interest earned from NSC under ‘Income From Other Source’.
Let us now make comparison of Post Office NSC scheme with other different schemes available in India.
National Savings Certificate Comparison:
There are many other tax-saving investments that qualify for Section 80C of the Income Tax Act, check out below:
Is NSC Better Than PPF ?
National Saving Scheme (NSC) is better for short term investment option where as for long term Public Provident Fund (PPF) is better. For both the investment i.e. the principal investment is tax free. Check out the below NSC Vs PPF comparison points to know more:
NSC Vs PPF
National Savings Certificate NSC
Public Provident Fund (PPF)
Investment is Tax-free under section 80c. Maturity:
Interest is taxable as per income tax slab rates.
Under Section 80C, the investment is tax-free.
Maturity: Interest and maturity amount is not taxable.
Is NSC Better Than NPS ?
National Pension Scheme in short known as NPS is a low cost, tax-efficient, flexible and compact retirement savings account.
In comparison to NSC, NPS is good for long term horizon and expect better returns as the scheme is market related. Check out the below NSC Vs NPS Comparison table to know more:
NSC Vs NPS
National Savings Certificate NSC
National Pension Scheme (NPS)
Till retirement (18-60 Years)
Investment is Tax-free under section 80c.
Maturity: Interest is taxable as per
income tax slab rates.
Investment: Tax-free under section 80c and 80d.
Maturity: 60% tax free. 40% taxed in the year of receipt.
Under the NPS, the individual contributes to his retirement account and also his employer can also co-contribute for the social security and welfare of the individual.
This means you as an individual investor one can opt for NPS as well as your employer incase you work somewhere can also make the contribution from your behalf.
The average returns from NPS Scheme since inception is in range of 8 to 15% which is great.
Is NSC Better Than ELSS ?
Equity Linked Saving Schemes (ELSS) is one of the best tax saving mutual funds scheme at present in India in comparison to NSC, it is better for short term because of the high returns which ranges from Compounded Annual Growth Rate (CAGR) of about 12- 20% p.a.
You will be surprised to know that ELSS is the only mutual fund which qualifies for a tax deduction of up to Rs. 1.5 lakh annually under Section 80C of the Income Tax Act as of now.
Check out the below table to know more on NSC Vs ELSS:
NSC Vs ELSS
National Savings Certificate NSC
Equity Linked Savings Scheme (ELSS)
Investment is Tax-free under section 80c. Maturity: Interest is taxable as per income tax slab rates.
Under Section 80C, the investment is tax-free. Maturity: 10% tax on long term capital gains.
In ELSS you can make monthly SIP as well as Lumpsum SIP, whereas With NSC you can only make Lumpsum moreover the taxation happens on maturity for NSC based on your tax slab whereas with ELLS you will need to pay 10% LTCG.
Before We end this post I want to talk about one important factor which we have not discussed yet i.e. NSC and impact of Inflation.
Impact of Inflation On National Savings Certificate?
NSC Scheme is not the right choice to beat inflation, it is because of the low interest rates. Currently the interest rates on NSC is 6.68% and if we assume the average inflation for your 5 years investment tenure to be even 3.5% the returns would be very marginable.
Inflation refers to the increase in the prices of regular or everyday use goods and services like food, grocery, clothing, land, housing, medical care, education, electronics etc.
High inflation results in higher cost of living which leads to de-growth of a economy, this also shows the decrease in purchasing power of any country currency.
Due to inflation, the value of money decreases over time. For example if you have kept Rs. 1,00,000 with you as idle for 5 years instead of investing, assuming an inflation rate of 7% per annum the value of your money will be reduced to Rs.71,299 in percentage terms its -28.70% decline overall.
Let us understand this through an example suppose you made a investment in NSC of INR 10 Lacs with current interest of 7.7% for 5 year period. Using the moneycontain Post Office NSC Calculator we can find the returns from the scheme.
Principal Amount = Rs.10 lacs
Maturity Amount = Rs. 14,59,033
Now assuming the average inflation to be just 5% the actual value also know as present value will come down to Rs. 11,43,191 i.e. -21.65% decline from the actual Rs.14,59,033.
You can find the present value of future income using moneycontain reverse inflation calculator here.
So, after investing Rs.10 lacs for 5 years you have only made Rs.1,43,191 this due to inflation. Find out how inflation impact on different aspects of your life. This means there is not much capital appreciation in this type of investment.
But here is the thing, the returns from NSC are guaranteed from GOI as it is not market linked, which makes this a secure investment. Moreover NSC is better as a tax saving scheme rather than an a investment scheme. However, it is always advisable to investment your money in different channels.
I means diversify your investment, make few amount invested in low risk financial instruments such as NSC and some in high and moderate risk such as mutual funds SIP or Stocks or ETF or Index such as Nifty50, FINNifty or ELSS etc.
This is the best form of investment as a famous saying “never put all your eggs in one basket”.
I know the post has become too long, but I always try to give as much information available in a single post so you do not need to search it on google again and again. I hope you now have known much about the NSC scheme.
In the end I would say it is always better to invest money rather than keeping it in your savings account or in almirah until the returns are much higher their😀😎.
Because any which ways with time and inflation the value of your money is getting eroded day by day.
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Note: Please do not take this as any recommendation, to trade or invest. This is just for reference, to make you understand more about National Savings Scheme and its importance, under no circumstances intended to be used or considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset.
Please do your own research and make investment. Moneycontain will not be responsible for any of your losses at all. The point made is for educational purpose only. All investments are subject to risks, which should be considered prior to making any investments.