National Savings Certificate (NSC)

We have plenty of options to make our investments. As per the financial goals of an individual NSC (National Savings Certificate), a post office savings product is one such option which comes with many benefits.
What is the National Savings Certificate?
Popularly known as NSC, it is an Indian Government Savings Bond, primarily used for small savings and income tax saving investments in India. It is part of the postal savings system of Indian Postal Service.
Features of NSC VIII Issue
1. Earlier NSCs were available with two tenures – 5 years (NSC VIII) and 10 years (NSC IX). With the discontinuation of NSC IX, only the 5 years NSC VIII is currently available for subscription.
2. Under NSC VIII Issue, not only initial deposit but also the accrued interest for the first 4 years enjoys the benefit of Section 80C of Income Tax Act, 1961.
3. The scheme was launched mainly for individuals therefore, NRI’s, HUF’s and Trusts are not eligible to opt for this scheme. Only Indian citizens will be able to invest in this scheme.
4. Interest rate is subject to periodic change as per Ministry of Finance announcements.
5. Minimum NSC investment is Rs. 100 with no maximum limit.
6. Interest is compounded annually but paid out only at maturity without any TDS deduction.

Benefits of NSC
1. Almost risk-free investment backed by the Government of India.
2. Flexibility due to low minimum investment requirement of Rs. 100 and no max limit.
3. Provides tax deduction benefit on investments of up to Rs. 1.5 lakhs annually.
4. Transfer of the certificate is allowed from one individual to another. However, it is allowed only once during the lock-in period.
5. The NSC can be used as a security or collateral and can be provided to banks to avail loans. However, the respective postmaster must authorize the transfer of the certificate to the bank.
6. Family members including minors can be added as nominees by the investor. In case the investor passes away during the tenure of the scheme, the nominee will be able to inherit the scheme.
7. In case individuals lose the original certificate, a duplicate certificate can be obtained.
Tax Treatment
Primarily, NSCs are tax saving investments as the principal amount invested allows tax deduction under Section 80C up to the Rs. 1.5 lakh limit. However, the interest earned on NSCs features a different tax treatment. The interest earned annually from NSC (for the first four years) is deemed to be reinvested hence exempt from tax and also eligible as a further deduction under Section 80C (subject to the overall annual limit of Rs 1.5 lakhs). However, the interest earned in the 5th year is not re-invested hence taxable as per the investor’s applicable slab rate.

Modes of Holding of National Savings Certificate
The different modes of NSC are as follows:
1. Single Holder Type certificate: Single holder certificate can be purchased by an investor for self or on behalf of a minor.
2. Joint A Type certificate: In this case, the certificate is held by two investors with an equal share of maturity proceeds.
3. Joint B Type certificate: This is also a joint holding certificate however the maturity proceeds are paid out to only one of the holders.

How to invest in NSC?
NSC can be bought from any India Post Office on submission of required KYC documents. Currently, the online purchase of NSC is not possible. The following are the key steps for making NSC investments :
1. Fill out the NSC application form. NSC application form is available online as well as at all post offices.
2. Submit self-attested copies of required KYC documents. Carry originals for verification.
3. Make the payment of the amount to be invested by cash/through cheque.
4. Once the purchase of certificates is processed NSCs of the applicable amounts are printed and can be collected from the post office.

Documents required
1. Fill out the NSC Application form.
2. Identity proof like Aadhar Card, PAN, etc. is also required along with the address proof like Voter ID, Aadhar card.
3. A recent photograph along with the cash/ cheque deposit of investment amount.
Premature Withdrawal
Premature withdrawal in the lock-in period of 5 years is only allowed in certain special cases which are:
1. Death of NSC Holder.
2. Forfeiture by a pledge who is a Gazetted Government Officer.
3. Order of court for premature withdrawal of NSC.