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National Saving CertificateEvery one would love to have an assured return on their investments. And if such an investment gives a handsome return of 8% plus, it would definitely attract attention of the investors, specially those who do not want to take risk on their investments. National Saving Certificates or commonly known as NSC is one of such products and is amongst the best and safest form of debt investment option available to Individuals in India. Let me take you through a couple of key features of this investment :

 

Key features of NSCs
1. NSCs are available in two options :
a)NSC VIII Issue – Interest rate of 8.6% with a maturity of 5 years. Rs. 100 invested under this issue becomes Rs. 152.35 after 5 years.
b) NSV IX Issue – Interest rate is 8.9% maturity period is 10 years. Rs. 100 invested under this issue becomes Rs. 238.87 after 10 years.

2. One of the attractive tax benefits offered by NSCs is that an investment in NSCs qualifies towards Rs. 1 lac tax rebate under section 80C.
3. NSCs can be invested in denominations of Rs. 100, 500, 1,000, 5,000 and Rs. 10,000.
4. Unlike PPF, there is no maximum limit which one can invest on a yearly basis.

 

Who can invest in NSCs
Essentially every Indian resident individual can invest into NSCs. NRIs are not eligible to invest in NSCs. However, if a resident who becomes NRI can continue to avail benefits of NSC investments made prior to becoming a NRI. Such investments would be held on a Non-Repatriable basis only.
Minor can invest in their name. The payment of NSC would be hence be made to the minor personally or his guardians.

 

BFA Nomination LoveNomination
It is important to provide nominee details in NSC. You can read our article Importance of Nomination to get more details on Nomination. NSCs like other investment options provide an option to nominate. A couple of features to be aware of in case of nomination in NSCs are :

  • Minor can be a nominee.
  • if a NSC is transferred to another person, the nomination gets cancelled.
  • In case NSC is pledged, the nomination remains unaffected. However, the pledgee will have right over nominee on the proceeds of the NSCs to recover any funds advanced against the NSC.
  • In case of joint nominees, if any of the nominee dies, the funds shall be given to the surviving nominee.
  • if there is no nominee and no probate of will / succession certificate exists, then upto a prescribed limit, the prescribed authority may transfer the amount to any person appearing to be entitled to receive the funds. This would be done after performing the required formalities such as taking an oath.

 

Place of Encashment

On maturity of a NSC, it can be encashed at the post office where it is registered to. A NSC can also be encashed at any other post office. However, before encashing the post master shall validate the entitlement of the person presenting the NSC from the post office where the NSC is registered.

 

Mode of holding
Like any other investment option, investors have an option to hold NSCs in a Single name, Joint name and Any or Survivor mode.

 

Procedure
Investment in NSCs is an easy process. You can visit any Post Office and fill a NSC investment form. Attach a cheque or pay in cash to get a NSC certificate issued to you. Alternatively, you can utilise the services of any Post office authorised agent who would sort the paper work for you.

 

Transfer
Transfer of a NSC certificate from one person to another is restricted. For the following cases the transfer can be made by the Post master of the post office where the NSC is registered :
(i) From deceased holder to his heir
(ii) to a court of law or to any other person under the orders of court of law.
(iii) From a single holder to the names of joint holders of whom the transferee shall be one of the holder.
(iv) From joint holders to the name of one of the joint holders.

In all other cases,permission is needed from Head Postmaster.

Normally the Postmaster shall give his consent to a transfer of NSC only if the transferee is eligible to purchase the NSC and the transfer is made after expiry of 1 year. If the transfer is done within 1 year, it should be falling under the following categories :
– to a near relative (husband, wife, lineal ascendent or discendent or siblings) out of natural love & affection or
– heir of deceased holder;
– holder of court order
– for pledging;
– from joint account holders to surviving account holder.

 

PledgingPledging
Holder of NSC can transfer the title of the NSC to the following entities as a pledge :

  • Reserve Bank of India or a scheduled bank or a cooperative society including a cooperative bank
  • Corporation or a Government company
  • local authority
  • Housing Finance Company

The post master shall endorse on the NSC by marking it ‘Transferred as security to …’

 

Taxability of NSC interest
Though NSC investment qualifies towards the 1 lac investment based tax rebate under section 80C of Income tax act, interest income from NSC is not tax free. On an annual basis, you should disclose accrued interest on NSC in your tax return under the head ‘Income from Other Sources’. Hence for a high tax bracket investor, investment in NSC may not be an attractive investment vehicle as post tax investment yield will fall down to approx 6% !

It is also important to note that no TDS shall be deducted by the post office at the time of encashing the NSC on maturity.

 

Go or No Go ?

Looking into overall features of a NSC, it definitely stands out amongst the available list of debt based investment products. The advantage of risk free interest payouts with no TDS being deducted is a big positive. However, the taxability of NSC interest makes it a tax inefficient investment option for people in high tax brackets.

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9 Responses to National Saving Certificates NSC

  1. Bhushan says:

    would love to buy this if it can be done online (demat !). Keeping hard copy of certificate is always risky and also takes time and effort for both buying and encashing

  2. Bhushan, I wish this facility was available. A pilot project was initiated but was later on canned in 2008. If any of the reader is aware of investing in NSC in demat form, please do educate us on this blog.

  3. Karan Batra says:

    Are loans available against NSC

    I heard that Loans are available against PPF Accounts, but are loans available aginst NSC as well?

  4. What happens to tax consideration if instead of encashing the certificate on maturity we buy new certificates in lieu of old ones.

  5. Swaraj,
    There is no change in tax consideration. NSC tax is chargeable on an annual basis (accrual). So if you buy new certificates, it won’t have any impact on your tax liability.

  6. VJ says:

    do we still have 5 year NSC scheme? It’s good to buy NSC certificate every month for continuous 5 years… then the next 5 years it can give monthly income….

  7. VJ you have a 5 year and a 10 year option.
    There is no right or wrong answer to your question and the response depends upon your age and risk appetite. The returns of NSC will be capped to max 8.5%. However, 5 years is a decent time frame to invest the same money on a monthly basis into equities to get much better returns.

  8. Mallanagouda says:

    Any TDS will be deducted at the time of maturity? & and intrest earned is subjected to tax part? If so pl guide me how to calculate the tax & what %age

  9. Mallanagouda,
    No TDS will be deducted on maturity. Interest is subject to tax like a normal interest income based upon your taxation slab rate.

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