National Saving Certificate (NSC): Know all about this risk free investment option from India Post

National Savings Certificate (NSC) along with Public Provident Fund and Kisan Vikas Parta (KVP) are popular fixed income trio which can be availed by common investors in a post office. These instruments are 100% safe and promoted by the Government of India. In this article, we would explore details of National Savings Certificate (NSC).

What is National Saving Certificate?

National Savings Certificate or NSC as it’s popularly known is a fixed income investment scheme that encourages subscribers primarily small to mid-income investors to invest while saving on income tax under Section 80C

Who can invest in National Saving Certificate?

Government of India has promoted National Savings Certificate as a savings scheme for Indian individual investors. Hence, below mentioned investors categories are not allowed to invest in NSCs

• Hindu Undivided Families (HUFs)
• Trusts,
• Private and public limited companies
• Non-resident Indians (NRIs)

If a resident Indian invests in the NSC and he/she subsequently became an NRI before the maturity period, as per the provisions allowed in this scheme, the person shall be allowed to the claim the interest and tax benefits accruing from investing in this investment option.

How & where you can buy it?

Till 1st July 2016, pre-printed NSC certificates were issued by banks or Post Offices. Presently, the certificates can be,

Recorded in two modes namely e-mode (electronic mode) or in Passbook mode.

Purchased from all Public Sector Banks and top three Private Banks (ICICI, HDFC & Axis)

If you have a Savings account with Bank/Post office, you can buy NSC certificates in e-mode, provided you have access to internet banking. It can be bought by an investor for self or on behalf of minor or with another adult as a joint account.

Documentation required

The documents required in order to invest in an NSC are,

• Completely filled NSC application form.
• ID proof such as,

         Aadhar Card

         Passport

         Permanent Account Number (PAN) Card

         Voter ID

         Driving license

• Photograph.
• Address proof like Aadhar  Card, electricity bill, Passport, telephone bill, bank statement along with a cheque.

Feature / benefits of NSC

Some of the benefits of NSC are,

Investments in NSC are 100% backed by government of India. You get guaranteed returns (6.8% annual interest) and can enjoy a regular income. (Note this is interest rate announced for Oct to Dec 2020)

One can invest as low as ₹ 1,000 (and then in multiples of ₹ 100) as an initial investment. There is no upper limit on the amount that can be invested in these certificates

Maturity period: The maturity period is five years.

The certificates can also be issued on behalf of a minor child

Investments made in NSC are eligible for deduction under section 80C of the Income Tax Act. Thus investors can enjoy tax benefits on their investments in NSC.

National Saving Certificate promotes the concept of long term investments

Loan can be taken against investment in National Saving Certificates.

NSC Taxation

One can invest up to ₹ 1.5 lakh annually for deduction under section 80C of the Income Tax Act, 1961. Additionally, the interest earned on the certificates annually, for the 1st 4 years are deemed to be reinvested and hence, also eligible for a tax break. However, the interest earned in the 5th year / maturity year is not re-invested hence taxable as per the investor’s slab rate.

NSC Vs other Tax Saving instruments

Note : Since NSC / PPF is backed by sovereign guarantee, risk is NIL for investors.

Interest Rate history

As can be seen, over last many quarters, rate of interest in NSC have been falling in-line with broader interest rates.

Modes of Holding

The different modes of holding National Savings Certificate are as follows:

1. Single Holder Type certificate: Single holder certificate can be purchased by an investor for self or on behalf of minor child

2. Joint A Type certificate: In this case, the certificate is held by two investors with equal share in maturity proceeds.

3. Joint B Type certificate: This is also a joint holding certificate however unlike A type certificate, the maturity proceeds are paid out to only one of the holders.

Issuance of duplicate NSC

If the original NSC certificate gets lost or mutilated, you can get a duplicate certificate issued. One needs to do is fill out Form NC-29 and submit it at the post office which issued the NSC

Conclusion

National Saving Certificate is most suitable for the risk-averse investors who seek better than FD returns. It’s a good avenue for investors who are looking to diversify their portfolio through fixed return, fixed tenure instrument