What are the Benefits of National Savings Certificate?

The National Savings Certificate (NSC) is a prominent fixed-income investment tool in India, known for its safety, attractive returns, and tax benefits. Ideal for individuals looking to combine savings with tax efficiency, NSC is a government-backed instrument that plays an important role in personal financial planning.

Table of Contents

• Features of National Savings Certificate
• Who Can Get NSC?
• How to Get National Savings Certificate?
• Benefits of NSC

Features of National Savings Certificate

The National Savings Certificate (NSC) is a popular savings instrument in India, known for its safety and reliability. It offers several features that make it an attractive option for investors, especially those looking for secure, long-term savings with tax benefits. Here are the key features of the NSC:

1. Government Backing: NSC is a government-sponsored savings scheme, which means it comes with a high degree of security and credibility. The risk of default is almost negligible, making it a very safe investment choice.

2. Fixed Interest Rate: The scheme offers a fixed interest rate for its entire term. This rate is generally higher than regular savings accounts and is set by the government. The interest rate remains constant throughout the maturity period of the certificate.

3. Tax Benefits: Investments in NSC qualify for tax deductions under Section 80C of the Income Tax Act of India. This feature makes it an attractive option for investors looking to reduce their taxable income.

4. Compound Interest: Interest on the NSC is compounded annually, which means the interest earned each year is reinvested into the principal amount. This compounding effect allows the investment to grow significantly over the maturity period.

5. Maturity Period: NSC has a fixed maturity period, typically 5 years. This makes it a suitable option for medium to long-term financial goals like children's education, marriage, or retirement planning.

6. Low Minimum Investment: The scheme is accessible with a relatively low minimum investment amount, making it suitable for small and medium-scale investors. This feature encourages savings among a broader section of the population.

7. No Maximum Investment Limit: While there is a minimum amount required to start investing in NSC, there is no maximum limit. However, the tax benefit under Section 80C is capped at a certain amount.

8. Easy Accessibility: NSC certificates can be purchased from a vast network of post offices across India, making them easily accessible to a large population.

9. Transferability: NSC certificates can be transferred from one person to another and from one post office to another, offering flexibility to the investor.

10. Loan Collateral: NSC certificates can be used as collateral security to get loans from banks and financial institutions.

11. Nomination Facility: The scheme allows investors to nominate a family member or any other person who can claim the investment in the event of the investor's demise.

Who Can Get NSC?

National Savings Certificate (NSC) is a type of savings bond primarily available in India, designed for individual investors. It is accessible to a broad range of individuals, subject to certain conditions. Here's an overview of who can invest in NSC:

1. Indian Residents: NSC is available to residents of India. This includes individuals who reside in the country and earn income that is taxable in India. It's particularly popular among salaried employees, small to medium business owners, and other resident individuals.
2. Adult Individuals: Any adult individual can invest in NSC. There is no upper age limit, making it a viable option for both young adults and senior citizens.
3. Minors: Investments in NSC can also be made on behalf of minors by their parents or legal guardians. This is a common practice for parents or guardians looking to build a future savings fund for their children.
4. Joint Holders: NSC allows investments in joint names. This means two adults can jointly purchase NSC certificates. The investment is then equally owned by both parties.
5. Hindu Undivided Families (HUFs) and Trusts: Previously, HUFs and Trusts were also eligible to invest in NSC. However, as of recent updates, this might no longer be the case, and it's advisable to check the latest guidelines.
6. Non-Resident Indians (NRIs): NRIs are generally not eligible to purchase new NSC certificates. However, if a resident Indian who has an NSC becomes an NRI during the tenure of the certificate, they can continue to hold it until maturity.
7. Other Entities: Organizations, companies, and other types of entities are not eligible to invest in NSC.

How to Get National Savings Certificate?

Enrolling in the National Savings Certificate (NSC) is a straightforward process, designed to encourage savings among citizens while offering tax benefits. Here's a step-by-step guide to help you through the process of investing in NSC:

Step 1: Understanding the Scheme

• Research: Begin by gathering information about the NSC, including its interest rates, maturity period, tax benefits, and any recent changes to the scheme.
• Evaluate Suitability: Determine if NSC fits your investment goals, particularly if you're looking for a low-risk, tax-saving investment.

Step 2: Gather Required Documents

• Identification Proof: Typically, a government-issued ID like a passport, driver’s license, or Aadhaar card (in India).
• Address Proof: Utility bills, rent agreements, or similar documents.
• Photograph: Recent passport-sized photographs may be required.
• PAN Card: If applicable, for financial and tax-related documentation.

Step 3: Visit an Authorized Post Office or Bank

• Find a Location: NSC certificates are generally available at post offices across India. Some banks also offer them.
• Inquire: Once there, speak to an official for the latest information on NSC.

Step 4: Fill Out the Application Form

• Application Form: Obtain an NSC application form from the post office or bank.
• Complete Details: Fill in the form with accurate details, including your name, address, PAN, and other required information.

Step 5: Decide the Investment Amount

• Investment Amount: Decide how much you wish to invest in NSC. The minimum amount is typically quite low, making it accessible, but there’s usually no maximum limit.

Step 6: Make the Payment

• Payment Methods: You have the option to make payment in cash, cheque, or demand draft, depending on your preference and the available options at the post office or bank.
• Receipt: Ensure that you receive a receipt or acknowledgement for your payment.

Step 7: Obtain the NSC Certificate

• Issuance of Certificate: After your payment is processed, you will be issued an NSC certificate. This certificate will include details like the certificate number, the amount invested, maturity date, and the maturity amount.
• Safekeeping: Keep this certificate in a secure place, as it is a crucial document for both redemption and tax purposes.

Step 8: Monitor and Manage Your Investment

• Record Keeping: Keep a record of your investment, including the certificate number and maturity date.
• Interest Tracking: Although NSC interest is compounded annually and paid at maturity, you should track it for tax filing purposes.

Benefits of NSC

The National Savings Certificate (NSC) is a popular savings instrument in India, offering several benefits that make it a preferred choice for investors seeking a mix of safety, returns, and tax efficiency. Here are the key benefits:

• Government Guarantee: The NSC is a government-backed savings instrument, which means it comes with a high level of security. The risk of default is virtually nonexistent, making it a very safe investment option.
• Attractive Interest Rates: NSC offers interest rates that are generally higher than those on savings accounts. While the rates are subject to periodic revision, they are usually quite competitive, making NSC a lucrative option for fixed-income investors.
• Tax Benefits: One of the most appealing features of the NSC is its tax benefit. Investments in NSC qualify for a deduction under Section 80C of the Income Tax Act of India. The interest that accrues annually is also compounded and reinvested, and although it is taxable, it qualifies for a fresh deduction under Section 80C, thus reducing the taxable income for the first four years.
• Compound Interest: The interest on NSC is compounded annually and is payable at maturity. This compounding effect allows the investment to grow exponentially over time, especially as the interest itself earns interest.
• Fixed Tenure for Investment: NSC has a fixed maturity period, which is typically 5 years. This makes it a good option for medium-term financial planning, like saving for education or marriage expenses.
• Ease of Investment: NSC certificates can be easily purchased from a vast network of post offices across India, making them easily accessible to a large segment of the population.
• Low Investment Threshold: The scheme is accessible with a relatively low minimum investment amount, making it affordable for small savers. There is no maximum investment limit, but tax benefits are capped under Section 80C.
• No TDS (Tax Deducted at Source): Interest earned on NSC does not attract TDS, although it is taxable. This feature is beneficial for investors who do not want their returns diminished by taxes at the source.
• Loan Collateral: NSC certificates can be used as collateral against loans from banks and financial institutions, providing a form of financial security.
• Transferability: NSC certificates can be transferred from one post office to another. They can also be transferred from one person to another, under specific conditions, making them flexible.
• Nomination Facility: The scheme allows the investor to nominate someone who will receive the investment benefits in case of the investor's demise.