NSC - National Savings Certificate - Eligibility, Interest Rate, And Tax Savings Benefits

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Grip Invest
Grip Invest
Published on
Mar 27, 2024
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    NSC-Eligibility, Interest Rate, Tax Benefits

    Introduction 

    Various investment options are available to investors, such as bank FDs, mutual funds, equity, bonds, etc. You can select any investment option based on your risk appetite and financial goals.

    While aggressive investors prefer equities or mutual funds, conservative investors seek low-risk, fixed-income investment options. The National Savings Certificate (NSC) is one such initiative started by the Government of India. It is a low-risk investment tool that helps save taxes under Section 80C of the Income Tax Act.

    As we delve into this blog, we will explore the National Saving Certificate’s features, benefits, and how you can invest in this investment avenue.

    What is a National Savings Certificate?

    The Indian government started the National Savings Certificate in 1989. This low-risk scheme allows you to grow your capital with a fixed return and the added benefit of tax savings

    It is a bond scheme, an ideal savings and investment plan for small—to mid-level investors. It is easily accessible to citizens through every post office in India. 

    Who Should Invest In NSC?

    Investors seeking safe and predictable passive income with moderate interest rates and tax benefits can consider investing in an NSC.

    The following people can apply for National Savings Certificate:

    • A single adult
    • Joint Account (for at most three adults)
    • A minor above ten years in their name
    • A guardian on behalf of a minor or someone of unsound mind

    Features And Benefits Of NSC

    Features Of NSC

    The following are the features of the NSC certificate: 

    1. Interest: The government decides to revise the interest in the NSC savings scheme quarterly. Currently, the NSE provides an interest rate of 7.7% p.a., higher than bank FD and PPF interest rates.

    2. Minimum Deposit: The minimum investment amount under NSC is as low as INR 1,000, with no maximum limit. 

    3. Lock-in Period And Premature Closure: The lock-in period for NSC is five years. It can be closed only for the following exceptions: 

    • If the account holder or all the account holders in a joint account dies
    • If a Gazetted Officer forfeits it

    4. Transfer Of NSC account: The NSC savings scheme can only be transferred under the following conditions 

    • It can be transferred to legal heirs or nominees of the deceased account holder
    • It can also be passed to a joint account holder in case of the account holder's death. 
    • When the account is pledged to a specific authority. 

    Benefits Of NSC

    NSC is an income investment where pre-determined interest is updated quarterly.  Some other benefits of investing in NSC are:

    • Accessibility: NSC savings schemes are easily accessible as they are available through post offices located in every city and village throughout the country.
    • Safe And Secured Investment: National Savings Certificates are backed by the government, and the interest rate on the scheme is decided by the government, making them safe and secured. 
    • Low Initial Investment: They do not require a significant investment and can be opened with just INR 1,000. 

    Tax Benefit Of NSC Investment

    • The amount invested in NSC qualifies for tax deduction under Section 80C. The maximum deduction allowed under this scheme is INR 1.5 lakh per financial year.
    • Interest earned under NSC is not entirely tax-free. However, it is not taxed annually but rather on maturity at the investor's applicable slab rate, allowing investors to defer the tax liability on the interest until the maturity of the NSC. 

    Considerations To Keep In Mind When Investing In NSC

    Key considerations to keep in mind when investing in the National Savings Certificate (NSC) are:

    1. Interest Rate: The NSC offers a fixed interest rate, which the Ministry of Finance reviews quarterly. 
    2. Investment Tenure: NSC has a lock-in period of 5 years. 
    3. Eligibility: Only resident Indians can invest in NSC. Hindu Undivided Families, Trusts, Non-resident Indians, and Public and Private limited companies cannot.

    How To Invest In NSC?

    You can apply for an NSC fixed-income investment scheme both online and offline. 

    To apply online, you can use your Department of Postoffice (DOP) internet banking account, click on new requests, decide your investment amount, provide the transaction password, and download the deposit receipt.

    To apply offline, you need to visit your nearest post office, complete the NSC application form, provide KYC documents, complete the payment, and receive your NSC certificate.

    Documents Required To Apply For NSC

    Several self-attested documents are required to complete KYC to invest in NSC. 

    The list of documents required to apply for NSC is as follows:

    • NSC application form
    • Government ID Proofs
      • Passport
      • Permanent Account Number (PAN Card)
      • Voter ID
      • Driving licence
      • Senior Citizen ID or Government ID
    • Address proof, such as an Aadhaar card, electricity bill, passport, telephone bill, bank statement, etc.
    • Cancelled cheque
    • Photograph

    Comparing NSC With Other Tax-Saving Investments

    Basis

    NSC

    PPF

    ELSS

    5-year FDs

    NPS

    Nature of Investment

    Short-term government-backed secured with fixed interest rate

    Long-term government-backed secured with fixed interest rate

    Mutual fund designed for investors to invest in the stock market with tax benefits

    Funds are deposited with a bank for a fixed period, with a predetermined interest rate

    A retirement savings plan investing in equities, corporate and government bonds

    Maturity

    5 years

    15 years

    3 years

    5 years

    Till retirement

    Rate of Return (Current)

    7.7% pa

    7.1% pa

    Market-dependent

    6.5-7.5% pa

    Market-dependent

    Taxation







     

    Qualifies for tax deduction under Section 80C Up to INR1.5 lakh 

    Qualifies for tax deduction under Section 80C Up to INR1.5 lakh 

    Allows deductions under Section 80C and a 10% tax deduction on long-term capital gains (LTCG) above INR 1 lakh

    Eligible for tax benefit under Section 80C for a lock-in period of 5 years, interest subject to a tax deduction

    Qualifies for tax deduction under Section 80CCC Up to INR1.5 lakh and an additional INR 50,000 under Section 80CCD

    Risk Associated

    Low-risk

    Low -risk

    Medium-  to high risk

    Low- risk

    Market-associated risks dependent upon the chosen scheme and fund manager

    Please Note:  The total deduction limit for contributions made under Section 80C and 80CCC is INR 1.5 lakhs. However, you can claim an additional deduction of INR 50,000 under Section 80CCD for contributions to the National Pension System (NPS). This increases the maximum deduction limit to INR 2 lakhs.

    How To Request A Duplicate National Savings Certificate

    You can get a duplicate NSc even if you lose your original NSC certificate through the issuing post office by filing the following information in the Duplicate Savings Certificates form: 

    • Serial numbers, denominations, NSC issue details, and other certificate information
    • Purchase dates of the certificates, the reason for requesting a duplicate certificate, and any additional information

    Conclusion

    The National Savings Certificate (NSC) Scheme presents a compelling opportunity for a low-risk investment. It is easily accessible as the minimum investment amount can be as low as INR 1,000. With ease of online and offline investment, NSC is a dependable option for those looking to safeguard their financial future while enjoying tax benefits.

    Explore Grip Invest and stay updated on all relevant financial planning opportunities.

    Frequently Asked Questions On NSC

    1. Is there any tax benefit for NSC?

    Yes, NSC qualifies for tax deductions of up to INR 1.5 lakh in a financial year under Section 80C of the Income Tax Act, 1961. 

    2. Is TDS deducted on NSC interest?

    No, TDS is not deducted from the interest earned through NSC. However, tax is payable on the interest earned in the last financial year.

    3. Is the NSC interest rate fixed for five years?

    No. The government revises the interest quarterly, ensuring alignment with prevailing market conditions. 


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