NSC – National Saving Certificate: There are many options available when we take about investments. One can choose any according to their financial goals. National Savings Certificate (NSC), is a post office savings product, is a well-known option. As a low-risk investment, it is accompanied by a number of benefits.
- What is the National Savings Certificate?
- Who Should be Investing in NSC?
- Features & Benefits of NSC
- Tax benefits of NSC investment
- Comparing NSC with other tax-saving Investments
- Investment Interest Lock-in Period Risk Profile
What is the National Savings Certificate?
The National Savings Certificate or NSC is a fixed income investment scheme that one can open with any post office branch. The plan is an initiative by the Government of India. It is a savings bond that encourages subscribers – majorly small to mid-income investors – to invest and save on income tax.
A fixed-income instrument such as Public Provident Fund and Post Office FDs, this scheme are also a low-risk fixed-income product. One can choose to buy it from the nearest post office in their name, for a minor or accompanied by another adult like a joint account. NSC happens with a five years fixed maturity period. There is no such maximum limit on the purchase of NSCs. However, only investments of up to Rs.1.5 lakh can earn one a tax break under Section 80C of the Income Tax Act. The certificates make a fixed interest, which is currently at a rate of 6.8% per year. The interest rate is revised regularly by the government.
Who Should be Investing in NSC?
Any individual looking for a safe investment avenue for earning a steady interest along with saving on taxes could choose to invest in NSC. NSC provides guaranteed interest along with complete capital protection. However, just like most fixed income schemes, they are not able to deliver inflation-beating returns such as tax-saving mutual funds and National Pension System. The Government of India has made NSC easily accessible for prospective investors by making it available in the post office branches spread across the subcontinent.
The government has helped promote the National Savings Certificate (NSC) as a savings scheme for people. Hence, Hindu Undivided Families (HUFs) and trusts are not allowed to invest in it. Further, even non-resident Indians (NRI) are not permitted to purchase NSC certificates. Therefore, the scheme is open only for individual Indian resident citizens.
Features & Benefits of NSC
- Fixed income: Currently, the scheme generates a guaranteed return rate of 6.8% for investors. The returns offered by the NSC have usually been higher than FDs.
- Types: Originally, the scheme had two different types of certificates known as NSC VIII Issue and NSC IX Issue. The NSC IX Issue was discontinued by the government in December 2015. Hence, only the NSC VIII Issue is currently open for subscription.
- Tax saver: As a government-backed tax-saving scheme, one can choose to claim up to Rs 1.5 lakh under the provisions of Section 80C of the Income Tax Act from the year 1961.
- Start small: One can invest as low as Rs 1,000 (or multiples of Rs 100) as a beginning investment and increase the amount when possible.
- Interest rate: Currently, the interest rate is 6.8% p.a. This is revised by the government every quarter. It gets compounded annually However is going to be payable during maturity.
- Maturity period: The maturity period for the scheme is five years.
- Access: By submitting the essential documents and undergoing the verification process of KYC, one can obtain this scheme from any post office. Also, it is straightforward to transfer the certificate from one branch of a post office to another.
- Loan collateral: NBFCs and Banks accept NSC as security or collateral for secured loans. To do this, a transfer stamp must be put on the certificate by the concerned postmaster and transfer to the bank.
- Power of compounding: The interest one earn on their investment gets reinvested and compounded by default, though the returns do not conquer inflation.
- Nomination: In the unfortunate event of the investor’s demise, the investor can nominate a family member (even a minor) to inherit it.
- Corpus after maturity: Upon maturity, one will receive the entire maturity value. Since on NSC payouts, there is no TDS, the subscriber should pay the applicable tax on it.
- Premature withdrawal: Generally, one cannot exit or discard the scheme early. However, in unusual and exceptional cases like the death of an investor or, if there is a court order for it, they accept it.
Tax Benefits of NSC Investment
Under Section 80C, investments of up to Rs 1.5 lakh can earn the subscriber a tax rebate in the National Savings Certificate. Furthermore, the interest made on the certificates is further added back to the initial investment, and for a tax break, the person gets to qualify as well.
For instance, if one purchase certificates worth Rs 1,000, then the person is eligible for a tax rebate on that amount of initial investment in the first year. But in the second year, on the NSC investment(s), one can claim a tax deduction that year as well as the interest gained in the first year. This is because the interest is compounded annually and gets added to the original investment.
Comparing NSC with Other Tax-saving Investments
According to the Income Tax Act’s Section 80C, 1961, the option of NSC is made available for one of the tax-saving investment. The other conventional options are National Pension System (NPS), Public Provident Fund (PPF), Tax-saving Fixed Deposits (FD) and Equity Linked Savings Schemes (ELSS).
Investment Interest Lock-in Period Risk Profile
- NSC at 6.8% p.a. for 5 years has a Low-risk profile
- ELSS funds Market-linked, historical returns show at 12% to 15% p.a. for 3 years has a Market-related risks profile
- PPF at 7.1% p.a. for 15 years has a Low-risk profile
- NPS Market-linked, historical returns show at 8% to 10% p.a. Till retirement has a Market-related risks profile
- FD at 4% to 6% p.a. for 5 years has a Low-risk profile
As now you gather some knowledge of NSC, and if you are looking for tax deductions and capital protection under Section 80C, then you can consider investing in NSC.