National Savings Certificate (NSC) - Features & Income Tax Benefits

nsc main features

National Savings Certificate is the scheme issued by Indian government through post offices. NSCs can be purchased by any individual in India with a maturity period of five years. The buyer can claim a deduction of a maximum of Rs 1.5 lakh by investing in NSC. These can be used as a security for availing loans from banks or financial institutions.

Anyone who is looking for a safe investment avenue to save taxes while earning a steady income can opt for this scheme. NSC have a lock-in time of 5 years and offers guaranteed interest and complete capital protection. However, like most fixed income schemes, they cannot deliver inflation-beating returns.

Once the investment has been made, it earns an interest rate on a yearly basis. This interest will not be paid to the certificate holder till maturity date. The interest that is earned is reinvested in the NSC itself. The amount that is re-invested each year attracts tax benefits under Section 80C. Interest earned in final year is paid to the investor with the maturity amount and this interest is taxable as per the investor's tax bracket. No TDS  is deducted and certificate holder have to declare the income while calculating tax.

Types of NSC Certificate
NSC certificates come in denominations ranging from Rs. 100 to Rs. 10,000. Two type of NSC certificates:

  • NSC VIII: They have a maturity period of 5 years.
  • NSC IX: These certificates have been discontinued since December 20, 2015. They had a maturity period of 10 years.

Main Features of NSC

Eligibility : Can be purchased by Resident Indian individuals.
Liquidity : NSC have lock-in period of 5 years. Premature withdrawals are not allowed but these can be used as a security for availing loans from banks.
Rate of Interest : Interest rate is subject to revision every year. Rate remains fixed during the entire tenure of NSC.
Investment Limit : Minimum investment limit is Rs 100 & Maximum limit is Rs 1,50,000 in a financial year (for tax benefits).
Tax Treatment : Interest earned in final year is taxable as per the investor's tax bracket.
Lock In Period : 5 Years

Tax Benefits provided to NSC

nsc tax benefits

Section80C Benefits - Deposits made in NSC are eligible for deduction under Section 80C. The interest earned each year in the scheme is reinvested every year and the amount that is re-invested each year attracts tax benefits under Section 80C. 

Tax at Maturity - Interest earned in final year is taxable as per the investor's tax bracket. No TDS  is deducted and certificate holder have to declare the income while calculating tax.

Rules for NSC

Who can buy?
- Only Resident Indians Individuals can buy NSC.
- NRIs cannot purchase NSC. However, if a person was residing in India at the time of purchasing the scheme and later becomes NRI at the time of maturity, then he can claim the benefits of the scheme.
- Trusts and HUFs cannot purchase these NSC certificates.

Types of holding
Single Holder Type certificate: As evident from the name, this certificate is issued to an individual and can be held by one person only. This can be purchased by an individual person for himself, or for minor or on behalf of minor.

Joint A Type certificate: This type of certificate is issued to two individuals who are adults and the amount matured is also paid to both individuals.

Joint B Type certificate: This certificate is similar to Type A certificate which is issued to two individuals who are adults but the maturity proceeds can be paid to any one of the holders.

When can these NSC by purchased?
There is no lower or upper age limit for buying NSC.

Where to buy?
National Savings Certificates can be bought from any post offices in India on submitting the required documents. In case the payment of amount to be invested in made in cash, then certificates are issued immediately. However if the payment is through cheque, then certificate is issued only after realization of cheque.

Documents required to buy NSC
- NSC Application form
- Photograph
- Identity proof
- Address proof
- Cash, cheque, DD or any other through which payment is to be made

Contributions Limit
- The minimum investment possible in NSC is Rs. 100.
- There is no maximum limit on the purchase of NSCs.
- But investments of up to Rs 1.5 lakhs in the financial year can earn a tax break under section 80C.

 Interest on NSC
- Interest rate on new deposits is subject to revision every quarter / year.
- Interest rate remains fixed during the entire tenure of instrument.
- The interest is compounded half yearly, but it gets deposited into the account annually.

Conditions on Withdrawals
- NSC investment can be used as collateral to obtain loan from any financial institution.
- Premature withdrawals from NSCs are allowed in certain conditions.

Premature Withdrawls
Pre mature withdrawl is permitted under following conditions:
- On the death of NSC holder
- On forfeiture by a pledgee being a Gazetted Government Officer
- On the order of court for pre mature withdrawal of NSC

In case of pre mature withdrawal, following amount is payable:
- If the amount is withdrawn within one year of making the investment, no interest will be paid on the amount invested.
- If more than one year but less than three years has elapsed after making the investment, then interest payable will be simple interest.

Transfer NSC 
Transfer from one post office to another - To make such transfer, the certificate holder has to submit a transfer request in the form of an application as Form NC-32 to old or new post office.

Transfer from one person to another - The certificate holder has to submit an application in Form NC-34 to transfer the certificate to another person.

Maturity and Redemption of NSC
- Maturity date will be mentioned on NSC certificate at the time of issue.
- In case NSC has matured but the redemption has not been claimed, then simple interest as per the saving account rate will be given on such certificates for a maximum period of 2 years from the date of maturity of the certificate.
- No tax deduction at source at the time of maturity and certificate holder have to declare the income while calculating tax.
- To encash the NSC certificate on maturity, the holder of the certificate has to submit the certificates to the post master of the concerned post office. 

Following needs to be produced for the encashment:
- Original NSC certificate. (holder of the certificate has to sign behind the certificate signifying that the amount has been received)
- Identity proof
- NSC redemption/encashment form

Fee and charges
A small amount of Rs 5 is payable in following cases:
- Transfer of certificates from one person to another.
- Issue of certificate of discharge by post master upon encashment of certificates.
- Request for issue of duplicate certificates.
- When there is a change in the denomination of certificate.
- At the time of making a nomination after purchase of certificates or there is a change in nomination.