National Savings Certificate (NSC) – Interest Rate, Eligibility, Tax Benefits

We have plenty of options when it comes to investments. You can choose any as per your financial goals. NSC, a post office savings product, is one such option. The full form of NSC is National Savings Certificate and as a low-risk investment, it comes with a host of benefits. We will explore them in detail in this article.

National Savings Certificate 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 Q4 FY 2022-23 (January-March) is 7.0% p.a. The NSC interest rate in the previous quarter (October to December 2022) was 6.8%. Interest 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 of NSC

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:

• National Savings Certificate can be easily purchased at any Indian Post Office at a fixed maturity period of 5 years.
• Interest rate is subject to periodic change as per Ministry of Finance announcements.
• Minimum amount required for an investment in National Savings Certificate is Rs. 1000 (and in multiples of Rs. 100), while there is no maximum limit
• Principal invested qualifies for tax savings under Section 80C of the Income Tax Act, 1961 up to Rs. 1.5 lakh 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.   
• National Savings Certificate is duly accepted by all the major banks and NBFCs as a collateral or security against the secured loans.
• The investor himself can nominate any member of his family (minors are also eligible) to inherit his investments in NSC in case of sudden demise of the investor.

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 Criteria for NSC

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

• All resident Indians are eligible to invest in NSCs.
• Adults individually or jointly (up to 3 adults), guardians on behalf of a minor/person of unsound mind or a minor above 10 years can 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.

Documents Required for National Savings Certificate

1. Completely filled out NSC Application form
2. Recent Photograph
3. Identity proof – Aadhaar card, PAN, etc.
4. Address proof – Aadhaar card, Voter ID, etc.
5. Cash/cheque deposit of the amount to be invested

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

How to Invest in National Savings Certificates

Steps for NSC Offline Investment 

NSC can be bought from any Indian Post Office on submission of required KYC documents. Following are the key steps for making National Savings Certificate investments:

1. Fill out the NSC application Form, available online as well as at all Indian post offices
2. Submit self-attested copies of required KYC documents. You must carry the original documents as well for further verification
3. Make the payment of the amount to be invested by cash or through cheque
4. Once the purchase of certificates is processed, NSCs of the applicable amounts will be printed and can be collected from the post office

How to Invest in NSC Online

Here are the steps for opening an NSC India account online:

1. Login to DOP internet banking
2. Under the “General Services” section, click on “Service Requests” and choose “New Requests”
3. Select “NSC Account – Open an NSC Account (For NSC)”
4. Enter the minimum deposit amount for NSC and choose your debit account linked to PO savings account
5. Next, click on “Click Here” to read the terms and conditions, accept them and then submit the application online
6. Enter the transaction password, click on “Submit” and view/download the deposit receipt
7. To view the details of the NSC account opened, you can log in again and go to the “Accounts” section. Also, the nominee specified in the linked Post Office savings account will also be used to open the NSC in the name of the DOP online banking user.

Tax Implications 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 lakh 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 lakh). However, the interest earned in the 5th year is not re-invested hence taxable as per the investor’s applicable slab rate.

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. National Savings Certificate allows the following transfer options to an investor:

• Transfer from one post office to another can be made by filling out and submitting the Application for Transfer of Savings Certificates form 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 the Application for transfer of Savings Certificate from Person to Person Under Specified Conditions form at the NSC issuing post office. This can be done only once till the time of scheme maturity.

Loan Against National Savings Certificates

You may be eligible to obtain a loan against your 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 until maturity
• The interest rate offered on NSC investment varies based on individual loan applicant as well as the bank offering the loan
• The loan tenure equals the residual maturity (time remaining until maturity) of the NSC used as collateral

The above are some of the generic features of loan against NSC; the 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 gets lost, stolen, destroyed, defaced or mutilated, you can get a duplicate certificate issued. All you need to do is fill out the Duplicate Savings Certificates form 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 along with 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

Benefits of National Savings Certificate Investments

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

1. NSC investments are almost risk-free since they are backed by the Government of India
2. These investments offer one of the highest rates of return among the fixed income instruments
3. NSC investments offer flexibility to its investors due to the low minimum investment requirement of Rs. 1,000 and no maximum limit
4. National Savings Certificates are available at all the Indian Post Offices and hence, can be easily purchased
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 lakh annually
7. NSC investments can also be transferred to another family member (nominated by the investor) in case of the investor’s demise

FAQs

Q1. What are the NSC certificate denominations?

National Savings Certificates can be issued in denominations of Rs. 100, Rs.500, Rs. 1,000, Rs. 5,000 and Rs.10,000. An investor can purchase as many NSCs as he wishes to.

Q2. What are the income tax benefits of NSC scheme?

Investments in NSC offer tax benefits of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act 1961. Additionally, the annual interest generated on NSC investments is considered as a new investment for tax benefits. TDS is not to be paid on NSC; however, tax must be paid on the interest earned.

Q3. How many years does it take for the NSC to double?

The time period that a National Savings Certificate requires to double depends on the invested amount and the rate of interest.

Q4. What is the rate of interest on NSC in post office in 2022?

The rate of interest on NSC for FY 2022-2023 is 7%. To find out how much interest you can earn on your NSC investment, you can use an NSC calculator/NSC interest calculator available online.

Q5. Can NSC be encashed before its maturity?

NSCs have a maturity period of 5 years. One can encash an NSC before its maturity only in case of the investor’s sudden demise or if the court issues an order regarding the same.

Q6. How many NSCs can one buy?

There is no maximum limit to the number of NSCs that one can buy. The minimum amount required for an NSC investment, however, is Rs. 1000.