What is a National Savings Certificate (NSC)?

The National Savings Certificate (NSC) is a fixed-income investment scheme. This initiative by the Government of India was introduced to encourage subscribers (mainly small to mid-income investors) to invest while also saving up to Rs. 1.5 lakh on their income tax under Section 80C. It can be opened through any post office savings branch.

Important details about NSC: - The minimum investment one can make on NSC is Rs.1000. The interest rate on NSC is 7.7% p.a. The lock-in period for investing in NSC is 5years. You can invest in NSC from the nearby post office in your name, for a minor, or with another adult as a joint account. NSC has a fixed maturity period of five years. There is no such maximum limit on the purchase of NSCs.

Who is eligible to Invest in NSC?

The National Savings Certificate (NSC) is comparable to other fixed-income instruments, such as the Public Provident Fund and Post Office Fixed Deposits, because it provides investors with guaranteed interest and comprehensive capital protection. However, unlike tax-saving mutual funds and national pension systems, they cannot offer higher returns than the inflation rate. Here is a list of the requirements that must be met to be eligible to invest in National Savings Certificates (NSCs). Hindu Undivided Families (HUFs), Trusts, and Private and Public Limited Companies are not eligible to invest in NSCs. Only individuals who are Indian citizens can invest in NSC. Non-resident Indians (NRIs) cannot invest in the NSC as per regulations. But, if a person who is a resident and holds an NSC certificate changes their status to that of an NRI, then they can keep the certificates till maturity. Individuals of any age can buy a certificate, which is not conditional on a minimum or maximum age requirement. However, in the case that the recipient is a minor, a certificate can be issued on their behalf by an adult. Given this fact, the adult must be the minor's legal guardian to protect their best interests.

Documents needed to apply for NSC

Here’s a list of the documents required to be submitted to invest in an NSC-

• The NSC application form.
• Original identification proof to be provided by investors, such as
• -Passport
• -Permanent Account Number (PAN) Card
• -Voter ID - Driving license
• -Senior Citizen ID, or Government ID for verification Photograph.
• Address proof like electricity bill, Passport, telephone bill, bank statement, and cheque.

How can one invest in NSC? In the past, physical NSC certificates could be obtained at banks or post offices. Since 2016, this has no longer been available. Either an electronic method, known as e-mode, or a passbook mode can be used to purchase certificates at present. You can easily acquire an NSC scheme with a savings account at an authorized bank or post office. On the other hand, the passbook approach is not very popular and is significantly more time-consuming. It is essential to keep in mind that to carry out these actions, you must first set up internet banking.

Tax benefits of investing in NSC 

Investors are eligible for favorable tax advantages under Section 80C of the Indian Income Tax Act if they invest in National Savings Certificates (NSC). The following is a list of the primary tax benefits of NSC:

Deduction on taxes: Under Section 80C of the Income Tax Act, taxpayers may deduct the amount invested in NSC from their taxable income. Taking advantage of the full deduction available under this section can save you up to Rs.1.5lakh in one financial year.

Exemption at Maturity: Even though the interest accrued on NSC is subject to taxation, the interest income is treated as a reinvestment and is therefore exempt from tax under Section 80C. This indicates that the interest will not be subjected to annual taxation but only when the investment matures or when the money is withdrawn.

Deferred tax: The interest earned on NSCs is not subject to annual taxation, which results in a tax deferral benefit for the investor. Investors can postpone paying taxes owed on the interest until the NSC reaches its maturity date, which creates an opportunity for the value of their investment to increase.

Tax benefit on a cumulative basis: The tax benefits associated with NSCs and those associated with any other investments or expenses that are qualified under Section 80C are available to get incremental benefits. This section discusses investments, including premiums for life insurance, contributions to provident funds, tuition fees, etc. Under Section 80C, the aggregate deductions cannot be more than the limit that has been specified.

Note: The interest rate on NSCs is 7.7% at present, and it will be applicable until the first quarter of 2023.

Is NSC interest taxable?

The annual interest is deposited into the account and added to the initial investment made in the NSC account. Section 80C of the Income Tax Act provides a tax refund for this accumulated interest. Reinvestment of interest is permitted for a maximum of four years due to the five-year maturity period of NSCs. The investor receives the maturity amount plus the interest gained in the fifth year. Thus, the tax benefit is only available during the first four years of the investment period. The interest earned is taxable in the fifth and final year.

It is important to note that the maximum deduction allowed by section 80C is Rs 1,50,000. If you have already taken advantage of the full relief, then you won't be able to take advantage of the benefit of interest earned under section 80C. Hence, you will be responsible for paying taxes on that interest.

Benefits & Characteristics of NSC Interest Rates: The certificates are eligible to receive an annual fixed interest rate, which is then reviewed by the government once every three months. This ensures that the investor will get a consistent flow of income. The interest rate, which the government revised by the government every quarter, is now set at 7.7% per year for the first quarter of the fiscal year 2023-2024. Although it is payable upon maturity, it is compounded annually. Currently, the investment opportunity provides investors with a fixed income and a guaranteed return of 7.7% of their initial investment. Generally, the returns offered by NSCs are higher than those provided by FDs.

Maturity Period: Originally, the plan offered two different types of certificates: NSC VIII Issue (with a tenure of five years) and NSC IX Issue (with a tenure of ten years). Because the Govt. stopped publishing the latter one in December of 2015, only the first issue is currently being offered for subscription.

Deduction in taxes: Since the National Savings Certificate (NSC) is a tax-deduction program supported by the government, the principal invested in an NSC is eligible for a tax deduction of up to Rs. 1.5 lakhs yearly under Section 80C of the Income Tax Act.

Flexibility in investment: The minimum first investment you can make is just Rs. 100, and there is no limit on how much you can invest overall.

Compounding value: The power of compounding occurs when the interest earned is added to itself annually and then automatically reinvested; however, the interest will only be repaid once the investment reaches maturity.

Easy accessibility: One can visit any post office nearby and show the necessary KYC documents to purchase an NSC. On top of that, it is pretty simple to transfer the certificate from one Post office to another and from one person to another without affecting the interest accrued or the original certificate's maturity. This can be done in either of these ways.

Loan Collaterals: National Savings Certificates (NSCs) can be used as collateral for loans from financial institutions like banks and NBFCs. During the loan process, a transfer stamp is affixed to the certificate before it is taken to the bank for loan disbursement.

Easy Nomination: The investor can mention any member of their immediate or extended family, including minors, as their nominee to inherit the property in case of the investor's unexpected death.

Early Withdrawal: In most cases, leaving such schemes too early is impossible. The only exceptions to this rule are the death of the investor, a court order, or the forfeiture of the investment by a pledgee who is a Gazetted Government Officer for this.

Collecting on maturity: The Investor will receive the entire corpus value at maturity. Because there is no TDS on NSC payouts, the subscriber is responsible for paying the applicable taxes when they file their income tax returns or make their advance tax payment.

How to apply for a duplicate National Savings Certificate

In a case where your original NSC certificate is misplaced, stolen, destroyed, damaged, or disfigured, you have the option of obtaining a copy. You need to fill out the form for Duplicate Savings Certificates and send it back to the post office that initially issued the NSC that needs to be replaced. The following items are essential parts of the form: Serial numbers, denominations, and other details about the certificate(s) are included in this material. The date on which the certificates were purchased. The reason for submitting a duplicate certificate, along with any extra information that may be relevant, needs to be submitted as well.