NSC - National Savings Certificate: Meaning, Features & Tax Benefits
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What is National Savings Certificate?

What is National Savings Certificate?
  • 16th Nov 2022 |
  • 2,843

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.

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 article will discuss everything necessary about the National Saving Certificate (NSC), including the interest rate and the tax benefit on 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 benefits only on investments of up to ₹1.5 lacs. 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.

What is National Savings Certificate?

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.

- Guardian can invest on behalf of the minor child/children or for a person of unsound mind.

- Minor 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.

Following are the top benefits of the Investment in 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 lac 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 lacs. 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 lakh 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 which 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 (ULIP

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, we feel that 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.

Who Should Invest in National Saving Certificate?

NSC offers guaranteed interest and complete capital protection, just like Public Provident Fund or 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.

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