National Savings Certificate (NSC): Interest Rate, Eligibility & Investment

National Savings Certificate (NSC) is a tax saving investment that can be purchased from any post office by an Indian Resident. Being a fixed return and low risk Government of India-backed investment, NSC is usually preferred by risk-averse investors or those seeking to diversify their portfolio through fixed return instrument.

Interest Rate

The National Savings Certificate interest rate is subject to periodic change as per the decisions communicated by the Finance Ministry. The applicable NSC interest rate for Q2 FY 2019-20 (July- September) is 7.9%. The NSC rate in the previous quarter (April- June 2019) was 8%. The 10-basis point cut is in accordance with the interest rate cuts happening across the financial market. The NSC is compounded annually. The following are the historic rates of interest for the scheme* :

*Interest earned from NSC is compounded annually but payable only at maturity. 

Key Features

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 year NSC VIII is currently available for subscription. Key features of NSC VIII are as follows:

•     NSC can be purchased at any India Post Office and maturity period is 5 years.
•     Interest rate is subject to periodic change as per Ministry of Finance announcements.
•     Minimum NSC investment is Rs. 100 with no maximum limit.  
•     Principal invested qualifies for tax savings under Section 80C of the Income Tax Act, 1961 up to Rs. 1.5        lakhs annually.
•     Interest is compounded annually but paid out only at maturity without any TDS deduction.
•     Issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000 and Rs. 10,000.   

Modes of Holding of National Savings Certificate

The different modes of holding National Savings Certificate are as follows:

1. Single Holder Type certificate: Single holder certificate can be purchased by an investor for self or on behalf of minor.
2. Joint A Type certificate: In this case, the certificate is held by two investors with 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.

Eligibility

The following are the key eligibility criteria for making National Savings Certificate investments:

•         All resident Indians are eligible to invest in NSCs.
•         Non-resident Indians cannot purchase new NSCs. However, in case of resident subscribers of NSC              becoming NRI prior to maturity of certificates, such NSCs can be held till maturity.
•         Trusts and Hindu Undivided Family (HUFs) cannot make NSC investments.
•         Karta of HUFs can make NSC investments only in his own name.

Benefits of National Savings Certificate Investments

The following are some of the key benefits of investing in NSCs:

1. Almost risk free investment backed by the Government of India.
2. Offers one of the highest rate of returns among fixed rate instruments.
3. Flexibility due to low minimum investment requirement of Rs. 100 and no max limit.
4. Easy availability as purchase can be made at any India Post Office.
5. These certificates can also be purchased in the name of a minor.
6. Provides tax deduction benefit on investments of up to Rs. 1.5 lakhs annually.

Tax Implication of National Savings Certificate

Primarily, NSCs are tax saving investments as the principal amount invested allows tax deduction under Section 80C up to the Rs. 1.5 lakhs limit. However the interest earned on NSCs feature 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.

How to invest in National Savings Certificates

NSC can be bought from any India Post Office on submission of required KYC documents. Currently 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. Completely filled out NSC Application form.
2. Recent Photograph
3. Identity proof – Aadhaar, PAN, etc.
4. Address proof – Aadhaar, Voter ID, etc.
5. Cash/cheque deposit of investment amount.

These documents can be submitted at any India Post Office to obtain NSC in applicable denominations.

Transfer of National Savings Certificate

NSCs can be transferred from one post office to another as well as from one person to another without impacting interest accrual/maturity of the original certificate. NSC allows the following transfer options to an investor :

• Transfer from one post office to another can be made by filling out and submitting Form NC-32 at the post office which earlier issued the original certificate.
• Transfer of National Savings Certificates can also be made from one holder to another by filling out Form NC-34 at the NSC issuing post office. This can be done only once till time of scheme maturity.

Loan Against National Savings Certificates

You may be eligible to obtain a loan against you National Savings Certificate investments subject to some key terms and conditions as follows:

•         Only resident Indians can apply for a loan against NSC.
•         A few leading private and public-sector banks currently offer this facility.
•         The margin applicable to loan against NSC depends on the time remaining till maturity.
•         Interest rate varies based on individual loan applicant as well as the bank offering the loan.
•         The loan tenure equals the residual maturity (time remaining till maturity) of the NSC used as collateral.

The above are just some generic features of loan against NSC, specific features such as margin, interest rate, tenure etc. tend to vary from one lender to another.

Issue of Duplicate National Savings Certificates

If the original NSC certificate has been lost, stolen, destroyed, defaced or mutilated, you can get a duplicate certificate issued. Just fill out Form NC-29 and submit it at the post office which issued the NSC that needs replacing. Key fields in the form include:

• Details of certificate(s) such as – serial numbers, denominations, NSC issue, etc.
• Date on which the certificates were purchased.
• The reason for application of duplicate certificate also needs to be mentioned among other details.

Premature Withdrawal

NSC VIII has a lock in period of 5 years with premature withdrawal permitted only in specific cases such as:

1. On the death of NSC holder.
2. On forfeiture by a pledgee who is a Gazetted Government Officer.
3. On the order of court for premature withdrawal of NSC