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What is National Savings Certificate?

If you are looking for a reliable government-sponsored investment scheme, then National Savings Certificate (NSC) can be the best option. Learn more about NSC with this blog.

  • 8,869 Views | Updated on: Feb 09, 2024

Updated on: 6th August, 2023

The number of investment avenues for an Indian investor keeps on increasing daily. Different banks and NBFCs (Non-Banking Financial Companies) keep developing new investment options to capture market share. The vast availability allows Indian investors to choose an investment option per their financial requirements and goals.

    Key Takeaways

  • NSC is a low-risk investment option offered by the Government of India.
  • It offers guaranteed interest and tax benefits under Section 80C of the Income Tax Act.
  • The interest earned on NSC is taxable, but it is exempt from Dividend Distribution Tax (DDT).
  • It can be purchased in either passbook mode or electronic mode (e-mode).
  • It is a good option for diversifying your portfolio and for those who are looking for a safe investment with guaranteed returns.

National Savings Certificate, also known as NSC, is a reliable Indian Post-Office savings product that is quite popular among investors. As a low-risk investment option, the NSC certificate comes with many benefits. This blog will discuss everything necessary about the National Saving Certificate (NSC), including the interest rate and the tax benefit of the NSC, among other essential things.

What is National Savings Certificate?

The National Saving Certificate or NSC is a fixed-income savings scheme that an individual can open with any Indian post office branch. It is a low-risk investment option offered by the Government of India that encourages budding investors and people with small to medium incomes to invest and grow their wealth.

NSC has a fixed maturity period of five years. There is no upper limit on purchasing the National Saving Certificate Scheme, but an individual can claim tax benefits only on investments of up to ₹1.5 lakhs. The tax benefits on the investment in NSC are subject to Section 80C deduction of the Income Tax Act.

When an individual invests in the National Saving Certificate Scheme, he is eligible to receive proceeds at a fixed interest rate, which the Government of India decides. The interest rate on National Saving Certificate Scheme is 6.8% per annum. However, this rate is revised by the government regularly.

Eligibility Criteria to Invest in National Saving Certificate

Just like a savings plan, National Savings Scheme also has eligibility criteria. The eligibility criteria to invest in the National Saving Certificate Scheme are as follows:

  • One must have Indian citizenship.
  • Individual adults or a joint group of 3 adults can invest.
  • Guardians can invest on behalf of the minor child/children or for a person of unsound mind.
  • Minors above the age of 10 years can invest in their name.

Top Features and Benefits of the National Saving Certificate

The National Saving Certificate comes with several benefits for investors. Liquidity is of great value to an individual with a medium or low income. The benefits and features of the National Saving Certificate allow such investors to access their money at all times.

Top benefits of Investment in a National Saving Certificate:

Guaranteed Return (Fixed Income)

Investment in National Saving Certificate Scheme helps generate fixed income through interest on the sum invested. For example, an individual can generate a guaranteed return on the NSC at a rate of 6.8% through the government’s regularized interest rate on the National Savings Scheme.

So, if you have ₹1 lakh invested in the NSC, you will receive a sum of ₹6,800 per annum as interest on your National Savings Certificate.

Tax Benefit On NSC

When you invest money on the National Saving Certificate, you can claim tax benefits on investments of up to ₹1.5 lakhs. The claims are subject to Section 80C of the Income Tax Act, 1961. This is a great way to save money for those with medium to low income or youngsters who have just started savings.

Small Investment Option

An individual can start investing in the National Saving Certificate Scheme with a small amount of ₹1,000 as the initial investment or any amount above that is a multiple of ₹100. After that, they can increase their investment amount when feasible.

Maturity Period

The National Saving Certificate has a mid-term maturity period of five years.

Compounding Benefits

The interest rate on National Saving Certificate Scheme allows an investor to get regular returns. The better part is that the interest earned on the NSC gets auto-compounded and re-invested yearly.

Tax Benefits of NSC Investments

Subscribing to the NSC with an investment of up to ₹1.5 lakhs can result in tax savings under Section 80C. The interest received on the certificates is added to the initial investment and comes under tax deduction.

For example, if you purchase ₹1,000 in certificates, you are eligible for a tax credit on that original investment amount in the first year. However, in the second year, you can claim a tax deduction for both the NSC investment(s) and the interest received in the first year. Because interest is added to the original investment and compounded annually, this is the case.

Best Alternatives for National Savings Certificate

Although the National Saving Certificate Scheme is a reliable and safe savings scheme that the government backs. NSC is a great investment option for low-risk investors, which makes it a good option for diversifying your portfolio. However, if you are a high-risk investor, there are a few others that you can explore. Some of these options might possess a little more risk but are worth consideration for your financial growth in the longer term.

Unit Linked Insurance Plans (ULIPs)

ULIPs are modern investment tools with dual insurance benefits and investments in the same plan. ULIP allows the policyholder to invest in the market-linked security based on their risk appetite. For example, a policyholder can opt for safer investment options like bonds if they have a low-risk appetite.

Guaranteed Savings Plan

If you are looking for more options for National Savings Scheme, you can consider the guaranteed savings plan option. In this plan, you have to ensure that you are investing a fixed amount every month or year for a fixed term. After this fixed term, you will get returns, which will be pre-decided at the start of the policy.

Did You Know?

The interest earned on NSC is taxable, but it is exempt from Dividend Distribution Tax (DDT).

How To Invest in NSC And What Documents Are Required To Apply?

Previously, physical certificates of NSC were issued by banks or post offices. However, this practice was discontinued in 2016. Now, NSC certificates can be purchased in either Passbook mode or electronic mode (e-mode).

The passbook mode is less popular and more tedious. It requires you to open a savings account at an authorized bank or post office. In contrast, the e-mode is more convenient. You can purchase an NSC scheme with your savings account online, provided you have activated your Internet banking. You will require the following documents to apply for NSC:

  • ID proof, such as a PAN number, passport, senior citizen ID, driver’s license, or any other identification provided by the government
  • Your photograph.
  • Proof of residence, such as passport, phone bill, electricity bill, or bank statement.

Comparing NSC with Other Tax-saving Investments

When it comes to tax-saving investments, the National Savings Certificate (NSC) is one option among several others. Let’s compare NSC with some popular tax-saving investments available in the market.

Public Provident Fund (PPF)

PPF is a long-term investment plan with a long maturity period. The interest rate is variable and compounded annually. It offers higher flexibility in terms of investments and withdrawals. While NSC is a fixed-income instrument with a maturity period, the NSC interest rate is fixed and compounded annually.

Equity-linked Saving Scheme (ELSS)

ELSS is a type of tax-saving mutual fund that finances primarily in equities. It has the potential for higher returns but also carries higher market risk. On the other hand, NSC is a risk-free investment with a fixed interest rate. It does not offer any exposure to equity markets.

Tax-saving Fixed Deposits (FDs)

Tax-saving FDs are offered by banks for a fixed tenure. The interest earned is taxable. They provide fixed returns and are relatively safer. NSC is issued by the government and is considered a safe investment. For NSC, interest earned is compounded annually, but TDS is not applicable.

Unit Linked Insurance Plans (ULIPs)

ULIPs are life insurance-cum-investment plans. They offer market-linked returns and life insurance coverage. On the other hand, NSC is a savings instrument and does not provide life insurance coverage.

Employee Provident Fund (EPF)

EPF is a retirement scheme for salaried individuals. It offers tax benefits and employer contributions. On the other hand, NSC is open to all individuals and is not tied to employment.

Who Should Invest in National Saving Certificate?

NSC offers guaranteed interest and complete capital protection, just like Public Provident Funds, Mutual funds, and Post office FDs. Thus, The National Saving scheme is for Indian Individual Citizens. As an investor, you can consider:

  • Fixed income at regular intervals - quarterly, annually, or monthly
  • Guaranteed interest rate
  • Low rate
  • Tax Saving

Diversifying your portfolio is a wise thing to do for every investor, low-risk or high-risk alike. NSC is one of the best ways to help you diversify your portfolio for optimized returns. Additionally, if you know your requirements and plan well, you can get good returns over time. From ULIP to Guaranteed Savings Plan to National Savings Certificate, you must invest in plans that help you beat inflation, ensure liquidity and still give you good returns.

How to Request a Duplicate National Savings Certificate?

If your original NSC certificate is damaged, lost, stolen, destroyed, or mutilated, you can request a duplicate. You have to fill out the savings certificates form and give it to the post office where the original NSC was issued.

The form’s primary fields are as follows:

  • The certificate(s)’ serial numbers, denominations, NSC issue, and other details.
  • The date on which the certificates were purchased.
  • The purpose of requesting a duplicate certificate must be stated, along with any additional information.

Conclusion

NSC is suitable for Indian citizens seeking fixed income at regular intervals, guaranteed interest rates, and tax savings. It offers a safe investment option with capital protection. By diversifying their portfolios and considering their specific financial requirements and goals, investors can make informed decisions to optimize their returns over time.

Remember, it’s always advisable to consult a financial expert before making any decisions to ensure they align with your individual financial circumstances and goals.

FAQ

1

How to show NSC interest in income tax?

You can claim a deduction for the interest earned on NSC under Section 80C of the Income Tax Act. The interest earned on NSC is taxable in the fifth year of maturity, so you will have to declare it as income in your ITR.



2

NSC comes under which section?

NSC comes under Section 80C of the Income Tax Act. This means that you can claim a deduction of up to ₹1.5 lakhs for the amount invested in NSC.



3

NSC or KVP? Which is better?

NSC and KVP (Kisan Vikas Patra) are both government-backed savings schemes, but NSC offers a higher interest rate. The interest rate on NSC is currently 7.7%, while the interest rate on KVP is 7.5%.


4

How to redeem NSC certificates after maturity?

You can redeem NSC certificates after maturity at any post office or bank. You will receive the maturity amount, which includes the principal amount and the interest earned.

5

How to get an NSC certificate?

You can get an NSC certificate from any post office or bank. You will need to provide your PAN card, address, and proof of identity.

6

How long does it take for NSC to provide a maturity amount double the principal amount?

At the current interest rate of 7.7%, it will take about 20 years for NSC to provide a maturity amount double the principal amount.

7

How to check the NSC certificate online?

You can check the NSC certificate online by visiting the website of the Indian Post. You will need to enter your NSC certificate number to check the status of your certificate.

8

Does NSC provide tax benefits u/s 80c?

Yes, NSC provides tax benefits under Section 80C of the Income Tax Act. You can claim a deduction of up to ₹1.5 lakhs for the amount invested in NSC.

9

How to find the NSC certificate number?

The NSC certificate number is printed on the NSC certificate. You can also find the NSC certificate number by logging into the Indian Post website.

10

How to withdraw NSC before maturity?

You can withdraw NSC before maturity, but you will have to pay a penalty. The penalty is calculated as a percentage of the interest that you would have earned if you had kept the NSC till maturity.

11

What is the minimum amount for NSC?

The minimum amount for NSC is ₹1000. You can invest in NSC in multiples of ₹100.

12

How to verify an NSC certificate?

You can verify an NSC certificate by visiting the website of the Indian Post. You will need to enter your NSC certificate number to verify the authenticity of your certificate.

13

How to Buy NSC Online?

As of today, you cannot buy NSC online. You will be needed to visit the nearest post office to fill out the application form. You have to submit this form to the executive in order to open an NSC account.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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