National Savings Certificate

What is National Savings Certificate?

An India Government Savings Bind, the National Savings Certificate, also referred to as NCS, is a small saving and income tax saving instrument. NSC is offered by the Indian Postal Service as a part of the postal savings system.

Eligibility

• NRIs, Hindu Unified Families aren’t eligible for investing in NSC.
• The certificates can be availed as an individual or even as joint holders.
• An individual can take NSC on behalf of a minor.
• For joint holdings, there are two modes of operation- one where both the investors are payable at maturity and the other, where either of the two holders get paid.
• For purchasing NCS, one needs to submit the application form of investment called Form 1.
• Supporting documents like proof of identity and proof of address may also be required.

How it Works

• NSCs are available in the denominations Rs 100, Rs 500, Rs 5000, Rs 10000.
• Minimum investment is Rs 100.
• No upper limit on investments. Investor can invest whatever he or she wants by buying the certificates in the available values.
• The current interest rate is 7.9%.
• The interest is compounded half yearly.
• The interest rate at which one buys the NSC remains fixed until maturity.
• Taxpayer can show the interest earned as income and then claim the same as deduction for investment in the same NSC under Section 80C.
• At maturity, the interest earned cannot be invested in the NSC and hence is taxable.

Maturity and Withdrawal

• The maturity period is 5 years.
• After maturity, holder needs to submit NSCs back to post office to get back original investment and interest.
• Premature withdrawal isn’t an available option if the investor is alive.
• In case of death of the NSC holder, nominees can withdraw the NSC before maturity.
• In case the applicant doesn’t redeem the NSC after maturity, the certificate will earn interest for 2 years. 
• The rate of interest after maturity is that of a savings account and is simple interest.
• After 2 years, post maturity, no interest in given.

Advantages

• The interest earned is tax free if one plays intelligently except the interest earned in the last year.
• No upper limit on investments for these certificates.
• Duplicates can be arranged in case the certificates are lost or damaged.
• Transfer of NSC certificates across post offices is allowed.
• Investments on NSC certificates can be used to secure loans.
• Nomination facility is also available.

Limitations

• Investment gets locked until maturity.
• Premature withdrawal is only allowed in case of death.
• In the event of death, the rights of nominee come into force.
• Interest rate is stagnant throughout 5 years.

Overall, National Savings Certificate is a great financial instrument that one can invest in. It helps in tax saving and in money growth. The benefits that one can gain from NSC is huge in number. It also acts as a source of steady income after retirement if invested in an intelligent manner. The fact that it is risk free and has guaranteed interest is one of the many reasons NSC is popular.