The National Savings Certificate (NSC) Scheme is specially designed for Government employees, Businessmen and other salaried classes who are Income Tax assesses. It is a popular and safe small savings instrument that combines tax-savings with guaranteed returns. Investors seeking long term investment who wanted their money to compound purchase NSC.

The assured return on NSC, can be used to create an income ladder. Investor can bought certificates every month or quarter and re-invested to create an assured regular income stream in retirement. For example, if one invest Rs. 10,000 every month for 5 years (i.e. 60 months) in NSE VIII Issue. After 5 years when NSC matures he will get Rs. 15,235 out of which he reinvest Rs. 10,000 for another 5 years in the NSC and withhold the remaining Rs. 5,235. He continues this practice on maturity of every NSC. Thus one can creates a regular income stream. There are two versions of the instrument (VIII & IX Issue) with different tenure. Investor can invest in the instrument which suit their requirements.

Lets look at this instrument and its features.

Availability:

 

National Savings Certificates (NSC) issued by Department of post, Government of India and are available at most post offices in the country.

Eligibility :

NSC’s can be purchased by any resident individual singly or jointly with other adult or by a guardian on behalf of a minor.

Investment Limit :

Minimum amount to be invested is Rs. 100/-. There is no maximum limit on how much one can invest. NSCs are available in denominations of INR. 100/-, 500/-, 1000/-, 5000/- & INR. 10,000/-..

Tenure :

Currently NSCs are available for two different term. NSC VIII issue has maturity of 5 years whereas the NSC IX issue has maturity of 10 years.

Interest & Returns :

The interest rate that is currently available on different instrument is as under :

• 5 Year Tenure NSC (VIII Issue)  : 8.60 % per annum(Maturity value of a certificate of INR.100/- purchased on or after 1.4.2012 shall be INR. 152.35 after 5 years.)
• 10 Year Tenure NSC (IX Issue): 8.90 % per annum(Maturity value of a certificate of INR.100/- purchased on or after 1.4.2012 shall be INR. 238.87 after 10 years.)

Interest is compounded half yearly. Interest on NSCs are not only guaranteed; but it also backed by government.

Tax Benefits :

Investment up to Rs. 1,00,000/- per annum qualifies for deduction under section 80C of Income Tax Act.

Interest Taxability :

The interest accrued on NSCs is taxable.

However, as interest accruing annually on NSC is automatically reinvested in the scheme, and such re-invested interest also qualify for tax deduction under section 80C of the Income Tax Act subject to Section 80C limit of Rs. 1,00,000.

To benefit from this feature of reinvested interest and its deduction, it is important to declare the accrued interest on NSCs on a yearly basis in tax return.

Transferability :

After expiry of one year from the date of NSC certificate it can be transferred from one person to another for whole amount on payment of prescribed fee. Transfer of the Certificate purchased on behalf of minor is permitted only if his guardian certifies that the minor is alive and the transfer is for the benefit of the minor.

Encashment on Maturity :

On maturity, the certificates can be encashed at the office of issue or at an office other than the office of issue subject to satisfactory verification of the certificate and identity of the presenter.

 

Premature Encashment :

The certificates can be prematurely encashed in case of

– Death of the holder or any of the holders in case of joint holders

– When ordered by a court of law.

If NSC certificate is encashed within a period of one year from the date of the certificate, only the face value of the certificate shall be payable.

If the certificate is encashed after expiry of one year but before the expiry of three years from the date of certificate, an amount equivalent to the face value together with simple interest is payable.

After the expiry of 3 years from the date of the NSC certificate, the amount payable inclusive of interest accrued and after adjustment of discount, shall be as specified by the government from time to time.

Liquidity :

The NSC offers liquidity in the form of loans and withdrawals subject to conditions. Many banks offers loan against pledging of NSC.

Risk Free :

The capital in the NSC is completely protected as the scheme is backed by the government of India, making it totally risk-free with guaranteed returns.

Other Features :  

• NSC Deposits are exempt from Wealth tax.
• Nomination facility is available in NSC.
• No tax deduction at source.
• Maturity proceeds not drawn are eligible to post office savings account interest for a maximum period of two years.
• Duplicate Certificate can be issued in case of lost, stolen, mutilated or defaced certificate on furnishing an indemnity bond in the prescribed form with sureties or with a bank’s guarantee.