National Savings Certificate
NSC offers assured returns and tax benefits. If planned well, one can create a regular income stream using this instrument
The National Savings Certificate (NSC) is a popular and safe small savings instrument that combines tax-savings with guaranteed returns. This scheme is backed by the government, and is one of the safest investment options available at post-offices. The distribution reach of post office has added to the popularity of this scheme and is much sought after across all investing class. Savings in this product is risk free because of the government-backing. Certificates can be bought from any head post office or general post office.
The NSC is not inflation protected, which means whenever inflation is above the current guaranteed interest; the deposit earns no real returns. However, when the inflation rate is below the guaranteed interest, it does manage a positive real rate of return.
The interest rate on the NSC is guaranteed. Currently the interest rate on NSC is 8.6 per cent on the 5-year option and 8.9 per cent per annum on the 10-year option compounded half yearly. The interest rates in this scheme will be notified before April 1 of that year, and is aligned with G-Sec rates of similar maturity, with a spread of 0.25 per cent on the 5-year option and 0.5 per cent on the ten year option.
The NSC is liquid, despite the 5- and 10-year stipulated lock-in. The liquidity is offered in the form of loans and withdrawals subject to conditions. The amount and rate at which the loan is permitted depends on the lending institution.
Premature encashment of the certificate is also allowed. Certificates are encashable at any post office in India provided one has obtained transfer of the certificate to the desired post office. If certificate is encashed within one year from the date of issue, only the face value of the certificate is payable. If the certificate is encashed after completing one year but before the end of three years from the date of issuing the certificate, an amount equivalent to the face value of the
certificate together with simple interest is payable.
Certificates are transferable from one person to another person before maturity. It also offers the facility of purchase or payment to the holder of power of attorney.
The sum invested in the 5-year NSC is eligible for tax deduction under Section 80C up to the Rs 1 lakh limit stipulated in a financial year including the accrued interest on existing certificates. The interest earned on NSC on a yearly basis is added to the total income under the head 'Income from other sources' and the same can be claimed as deduction under Section 80C, making the interest tax-free. But if the accrued interest is not taxed every year on an accrual basis then the entire income is taxable on maturity. Interest income is taxable but no TDS certificate is issued.
Maturity proceeds not drawn are eligible to post office savings account interest for a maximum period of two years.
How to buy
Once you have decided on the sum that you wish to invest:
* You need to fill the NSC application form available at the post office
* Carry original identity proof for verification at the time of buying
* You can buy the certificate with cash, cheque or demand draft drawn in favour of the postmaster of the post office from where the NSC is being bought
* Choose a nominee and get a witness signature to complete the formalities when buying the certificate
Eligibility: You need to be a Resident Indian to buy these certificates
Entry age: No age is specified for account opening
Investments: Minimum of Rs 100 per annum. Certificates are available in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000
Interest: 8.6 per cent compounded half yearly on 5-year tenure and 8.9 per cent compounded half yearly on 10-year tenure
Risks associated with loss or mutilation of certificate exists, for which a duplicate certificate can be issued on furnishing an indemnity bond in a format prescribed by the post office.