National Saving Certificate (NSC) – Interest Rate & Tax Benefits

The avoidance of taxes is the only intellectual pursuit that carries any reward.

— JMKeynes

Every earning individual in the country is obliged to pay taxes. Tax collection allows the government to provide its citizens with the best infrastructure and other services. However, paying taxes may also deprive individuals from using their yearly gains towards personal benefit. To prevent this, many people invest in various savings schemes that allow tax deductions. There are plenty of options for tax-saving investments. One can choose any depending on personal financial goals.

Here, we will discuss one such instrument that is popular for its tax benefits: National Savings Certificate (NSC).

What is a National Savings Certificate?

National Savings Certificate (NSC) is a tax saving investment that can be bought from any post office branch by an Indian Resident. Since this is a fixed-return, low-risk, government-backed investment, NSC is often preferred by risk-averse investors. It is also sought by individuals who wish to diversify their portfolio by investing in fixed return instruments.

The primary intent of introducing NSC is to encourage savings, allow tax exemptions, and allow definite returns to individuals during their retirement.

How much interest can be earned on National Saving Certificate

The National Savings Certificate interest rate is revised periodically, as per the Finance ministry’s decisions and communications. The ongoing NSC interest rate for Q3 FY 2021-22 (July to Sep) is 6.8%. The previous quarter interest rate on NSC was also 6.8%. The interest rate on NSC is compounded annually, but it is payable only at maturity. Mentioned below are the historical interest rates for the scheme:

Period	Interest Rate
Q1 FY 2021-22	6.8%
Q1 FY 2020-21	6.8%
Q1 FY 2019-20	8.0%
Q1 FY 2018-19	7.6%
Q1 FY 2017-18	7.9%
Q1 FY 2016-17	8.1%

What are the features of NSC?

Some of the noteworthy features of NSC are as below:

NSC can be bought at any Indian post office branch for a fixed maturity period of 5 years.
Minimum amount of investment in National Savings Certificate is Rs. 100 and there is no maximum limit. Issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000 and Rs. 10,000.
The principal amount invested is eligible for tax savings under Section 80C of the Income Tax Act, 1961 up to Rs. 1.5 lakhs in a financial year.
Interest is compounded annually and paid at maturity without any TDS deduction.
National Savings Certificate is accepted by all major Indian banks and NBFCs as collateral or security against secured loans.
The investor can nominate any family member (minors are eligible) to inherit the NSC investment in case of his/her sudden demise.

What are the tax benefits to be availed from NSC investment?

While there is no maximum limit on NSC investment, only yearly investments of up to Rs 1.5 lakhs are eligible for tax savings under Section 80C of the Income Tax Act, 1961. The annual interest earnings for the 1st four years are assumed reinvested (i.e. added back to the initial investment) and are eligible for a tax break. This is subject to an overall annual limit of Rs. 1.5 lakhs. The interest earnings of the 5th year of investment cannot be re-invested. Thus, it is taxable as per the investor’s applicable income tax slab rate.

What are the eligibility criteria for NSC investment?

Mentioned below are the eligibility criteria for National Savings Certificate investments:

All resident Indians are eligible for NSC investment.
Non-resident Indians are not allowed to invest in new NSCs. However, in case a resident subscriber of NSC becomes NRI before the maturity of certificates, such NSCs are permitted to be held until maturity.
Trusts and Hindu Undivided Family (HUFs) are not allowed to make NSC investments.
Kartas of HUFs are allowed to make NSC investments only under their own names.

What documents are required for NSC investment?

Some of the commonly required documents for NSC investment are:

Completely filled NSC application form
Recent photograph of applicant
Identity proof–Aadhaar card, PAN, etc.
Address proof – Aadhaar card, Voter ID, etc.
Cash/cheque for the amount to be invested

These documents must be submitted at any India post office branch for obtaining NSC in available denominations.

Who should invest in NSC?

The NSC provides guaranteed interest and capital protection similar to any fixed-income investments like Public Provident Fund and Post Office FDs. However, investors cannot expect NSCs to offer inflation-beating returns like a tax-saving mutual fund scheme. National Savings Certificate is primarily a savings scheme for individual investors. The below-mentioned are not allowed to invest in NSCs:

Trusts
Hindu Undivided Families (HUFs)
Private and public limited companies
Non-resident Indians (NRIs)

How to invest in NSC?

Physically pre-printed NSC certificates have been discontinued w.e.f 01-July-2016. Therefore, the certificates can be,

Preserved in two modes, namely:
- E-mode (electronic mode) or
- Passbook mode
Purchased from any public sector bank or one of these private banks, namely,
- ICICI
- HDFC
- Axis

If an individual has a savings account with a bank or post office, he/she can buy NSC certificates in e-mode. This is provided, the individual has access to internet banking. It can be bought either for self or on behalf of a minor or with an adult as a joint owner.

Conclusion

Similar to NSC, some of the other tax-saving options available for investors are Equity Linked Savings Schemes (ELSS), National Pension System, FDs, and PPF. Each of these offer different returns and benefits. An investor must select one that suits personal investment or financial goals.

FAQs

How to link NSC with Aadhaar?

NSC can be linked to Aadhaar either online or offline. For online linking, log on to your internet banking account to access your NSC account. Click on the ‘Registration of Aadhaar Number in Internet Banking’ option. Enter the 12-digit Aadhaar number and click on ‘Confirm’. Select the account to be linked to Aadhaar.

Which is better? NSC or 5-year Tax-Saving FD?

NSC and Tax-saving FDs, both come with a tenure of 5 years along with tax deduction benefits. While NSC can be used as a collateral against a secured loan, tax-saving FDs cannot be used as collateral. The ongoing interest rate on NSCs is 6.8% and for FDs, it ranges between 5-7.25% p.a.

How to withdraw NSC before maturity?

NSC has a lock-in period of 5 years, therefore, it cannot be withdrawn before this timeline. Exemptions to this rule include death of a single account owner, on order of court, or on forfeiture by a pledgee being a Gazetted officer.

Where can I find the NSC certificate number?

The NSC certificate number is available on the certificate copy. This number must be noted down so that one can apply for a duplicate certificate by using this number in case the original certificate is lost/stolen.