National Savings Certificate

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The National Savings Certificate is a Indian Government's initiative for assisting small savings accounts and income tax savings investments. As a fixed income investment scheme, the account can be started at any post office or India posts.

It is a savings scheme which encourages small to mid-income investors to invest and it also helps in saving income tax. Compared to the fixed-income schemes like Public Provident Fund and Post Office FDs, this scheme is a secure and low-risk product.

It has the maturity period of 5 years. Account holder will get the tax benefits under the Section 80C of Income Tax Act, 1961. Under this scheme, there are three types of accounts available which are Single Holder Type Account, Joint A- Type Account and Joint B - Type Account.

This scheme is a secured and low-risk product with guaranteed returns with complete capital protection. Under this scheme, one can pay minimum of Rs. 1000/- and maximum of whichever amount in the units of 100. There is no maximum limit for deposit in an NSC account. One can have multiple number of accounts under this scheme.

Who are eligible to invest in NSC:

• National Savings Certificate is only for the individual Indian Citizens and it can be availed by any Indian residents without age limit.
• Karta of HUFs (Hindu Undivided Family) can invest in NSC in their own name only.

Who cannot invest in NSC:

• Hindu Undivided Families (HUFs)
• Trusts
• Non-resident Indians (NRI)

The above mentioned people cannot invest NSC certificates.

Features of NSC:

• The NSC is a one-time investment. Hence, one can invest minimum sum of Rs. 100/- and there is no maximum limit in the investment. However, by the limit under Section 80C, i.e; Rs. 1.50 lakh, the NSC investment is not eligible for a tax deduction.
• NSC has two tenures namely 5 years tenure/ NSC VIII as well as 10 years tenure/ NSC IX. But currently NSC VIII is the only option available.
• NSC can be opened at any Indian Post Office and the fixed maturity of this scheme is 5 years. It is compounded half yearly and the return is taxed.
• Interest rate changes periodically as per the request of Ministry of Finance. The risk level is lower as compared to other schemes and is highly reliable scheme since the returns are directly provided by the government.
• After maturity, the subscriber will receive the entire maturity value. TDS amount will not be deducted for NSC. Hence, the subscriber should pay the applicable tax on it.
• It offers annual rate of interest of 7.6% with guaranteed returns. It is tax efficient and offers fixed income.
• NSC can be withdrawn only after the period of maturity. Premature withdrawals are not allowed except in the emergency situations like the death of the investor.
• It can be provided in the units of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000 and Rs. 10,000.
• Account holder can suggest some persons from their family. Even the minors are also eligible to take over the shares in NSC if the subscriber dies suddenly.
• The return rate is locked at the period of investment and during the tenure of the investment it remains protected from any changes made in rates. The rate of return for NSC is higher when comparing to the other fixed income schemes.
• After making investments in NSC, one cannot continue to add to that particular investment certificate. If they want to increase the exposure, they have to buy another.

Tax Benefits:

NSC offers its investors a tax benefit on investment up to Rs. 1.5 Lakhs with this Income Tax Act’s Section 80C. From the second year, the tax rebate can be claimed on the interest earned in the first year. It is because of the reason, that the interest is compounded annually and added back to the initial investment.

The interest earned on the certificates is also summed back to the initial investment and qualify for a tax break as well. During the second year, the subscribers can affirm a tax deduction on the NSC investments for that year along with the interest earned in the first year.

The interest is added to the original investment and is compounded annually.

How to apply:

The NSC certificates were availed by two modes namely electronic mode or Passbook mode. It is issued in all Public sector banks or Private Banks like ICICI, HDFC & Axis.

If one has a Savings account with Bank/ Post office, then they can buy NSC certificates in e-mode, provided the access to internet banking.

Documents required:

• NSC application form duly filled
• POI (Proof of Identity) For example: Aadhaar card, Passport, PAN card, Voter ID, Senior citizen ID, Driving license, Government ID for verification.
• POA (Proof of Address) For example: Electricity bill, Passport, telephone bill,, bank statement along with a cheque.
• Photograph.
• Investment deposit through cash or cheque.

Safe investment:

NSC offers safe investment avenue and it can be availed to save taxes for those who are earning a steady income. The NSC scheme offers guaranteed interest and whole capital protection.

However, similar to many fixed income schemes, they cannot deliver inflation-beating returns like tax-saving mutual funds, National Pension System etc.

Transfer of NSC:

NSC can be shifted from the existing post office to the other and also from one member to another member. However, the interest maturity of the original certificate will not be affected. Investors can make transfer through these transfer options available as follows:

For shifting from one post office to other post office, one has to fill up the Form NC 32 and submit it at the post office where they got the original certificate.

National Savings Certificates can also be transferred from one member to another member. For this, one has to fill up the Form NC 34 and submit it to the NSC issuing post office. It is allowed only once until the time of maturity of the scheme.

Conclusion:

As it is a secured scheme and low-risk product, it will be suitable for risk- hesitant investors. It is a low-risk scheme, which offers 100% capital protection and guaranteed returns.

The only disadvantage of this scheme is that the NSC does not offer exponential returns like Mutual Funds tax saving option or National Pension Scheme. The interest rate for every quarter is fixed by the government.

The biggest advantage with NSC apart from the security factor is that it has easy access. It being available at all post offices has an outreach to distant investors as well. Those investors who are looking for safety of capital or investors who expects diversify their portfolio through fixed return instrument then this is the scheme for them to invest.