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 NSC is government backed and does not require any commercial rating.
• You can pledge the NSC certificates to obtain loans, the amount and rate at which the loan is permitted depends on the lending institution.
• A certificate may be prematurely encashed. In case when the 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.
Premature encashment of the certificate is permissible.
Savings in this product is completely risk free because of the government-backing.
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.
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.
Where to Buy
Certificates can be bought from any head post office or general post office.
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.
Points to Ponder
• Maturity proceeds not drawn are eligible to post office savings account interest for a maximum period of two years
• Certificates are encashable at any post office in India provided one has obtained transfer of the certificate to the desired post office
• Certificates are transferable across post offices
• Interest income is taxable but no TDS certificate is issued
Tips and Strategies