The National Savings Certificate (NSC) is a popular small-savings tool. Promoted by the Central government, the NSC comes with guaranteed returns and tax-saving benefits.
Investor's capital in NSC is fully secured. It, however, doesn't provide inflation bearing returns. This means investment does not receive an overall return whenever inflation is above the interest rate.
Due to the income tax benefits and assured returns, the NSC encourages small or medium savings. It is commonly favoured by risk-averse investors.
How to invest in NSC
The NSC scheme is available at all post offices in the country. An investor can purchase NSC from post offices anywhere in the country. The scheme applies only to Indian citizens, and not applicable for a Non-Resident Indian.
There is no age limit to invest in NSC. One can invest in NSC on behalf of a minor by producing required documents.
As per the rules, investments in NSC cannot be withdrawn before the maturity period. The NSC comes with a maturity period of 5 years and 10 years.
If an investor decides to withdraw the money within a year, the government will only return the principal amount but after deducting a penalty.
The government, however, allows premature withdrawal in some specific cases. They are:
Death of the investor
An order by a court
On the forfeiture of the certificate (if the pledgee is a gazetted rank officer)
Rules also say that NSC can be transferred anywhere in the country. It can also be transferred to another individual.
The minimum investment is Rs 100. There is no maximum limit. NSC is issued in denominations of Rs 100, Rs 500, Rs 1000, Rs 5000 and Rs 10,000.
As per the rule, an investor can take a loan from financial institutions against NSCs. The certificates are accepted as collateral security against loans.
NSC Interest rates
The Centres hold the right to regulate interest rates on NSC. It is regulated every quarter. However, the interest is compounded annually. But the interest is paid only at the time of maturity.
The compounding of interest makes it a favourite destination for small and medium investors.
NSC Tax benefits
The amount invested by an individual can claim a deduction under Section 80C of the Income Tax Act, 1961. The deduction is limited up to Rs 1.50 lakh. The interest earned on NSC is taxable annually on an accrual basis. The interest is deemed to be reinvested each year.
Rules say that interest earned in the final year is not taxable because it is not reinvested and paid to the subscriber.