NSC, or the National Savings Certificate is a popular mode of small savings investment in India. This instrument is backed by the government and as such carries with it very low risk. The NSC is available primarily from the post office and is similar to another popular savings instrument, the Public Provident Fund (PPF). NSCs are a part of the postal savings system which come under the Indian Postal Service.
NSCs have a maturity of 5 years and 10 years and both offerings are close ended products. The 5 year maturity NSC is offered as NSC VIII Issue while the 10 year maturity product is offered as NSC IX Issue. There are different interest rates on NSC VIII and XI Issues.
NSCs are quite popular with the Indian populace, mainly due to the assured savings as well as tax benefits that can be claimed on investments made into this instrument. The tax benefits are available under Section 80C of the Income Tax Act, 1961. This section allows for tax benefits up to Rs.1.5 lakhs p.a. on investments in various specified instruments such as insurance, savings schemes, mutual funds etc.
The NSCs can be purchased through any post office branch by an adult on his or a minor’s behalf, joint accounts and minors. These instruments have the added benefit of being accepted as a collateral by lenders when applying for a loan. NSCs have been in circulation since the 1950s.
National Savings Certificate interest rate
The NSC rate of interest has been fixed by the government and is subject to revision on a yearly basis. Rates are announced at the start of every fiscal year on 1st April by the government for the year forward. The current NSC rates are as follows (for bonds issued from 1st April 2013 onwards):
- NSC VIII Issue (5 years maturity): 8.50% compounded half yearly
- NSC IX Issue (10 years maturity): 8.80% compounded half yearly
On maturity, the accrued interest on NSC can be reinvested in a new issue. This offers the dual benefits of:
- Tax benefits are not applicable on the accrued interests from NSCs. By reinvesting the earned interests, you can claim this amount as deductions under Section 80C.
- If you do not redeem or reinvest the amount in the NSC after maturity, the deposit will start earning taxable interest at simple interest rates, reducing the scope for accruing interests.
Earlier, the NSC VIII Issue was available for a maturity of 6 years. This was changed to 5 years in the year 2011.
Interest on premature withdrawal of NSCs
NSCs cannot be withdrawn prematurely unless one of the following happens:
- Death of account holder or holders in case of joint account.
- Forfeiture of a pledgee being a Gazetted government officer when pledge conforms to the rules.
- On court order.
No interest will be applicable if the NSC is withdrawn within 1 year of issuance. Certificates withdrawn later than 1 year but before maturity will attract interest at discounted rates. NSCs should generally be allowed to mature instead of opting for encashment before maturity.
This may look adverse from a liquidity point of view. However, NSCs have the distinction of being accepted as collateral by various lenders when applying for loans. As such, you can still enjoy liquidity from your NSC investments without breaking the deposit. This is a middle way of ensuring the interests keep accumulating while you are covered for immediate financial needs. However, you should note that personal loans have higher rates of interest and this should be a part of your consideration when applying for a loan.
Example of returns from NSC
NSC VIII Issue
You can start investing in 5 year maturity NSC VIII Issue with as little as Rs.100. There is no upper limit on investments in this bond. For a nominal deposit of Rs.100 in a 5 year maturity certificate, you stand to receive Rs.151.62 at maturity at the interest rate of 8.50% compounded half yearly. From this accrued interest, i.e. Rs.51.62, you will have to pay income tax as per your tax slab.
NSC IX Issue
The NSC IX Issue also accepts investments starting from Rs.100 with no upper ceiling on investment value. If you are investing the nominal amount of Rs.100 in the 10 year maturity certificate, you stand to receive Rs.234.35 at the end of the tenure at the rate of 8.80% compounded half yearly. The interest earned, i.e. Rs.134.35 on the principal amount of Rs.100 is taxable as per individual tax brackets as specified by the Income Tax Department in the terms of the act.
Important NSC Related Reads
- Documents Required for National Savings Certificate
- How to Calculate NSC Interest
- Loan Against National Savings Certificates
- National Savings Certificate Maturity
- National Savings Certificates Tax Benefits
- NSC Application Form from Post Office
- NSC Post Office Interest Rate
- NSC Post Office Saving Scheme
- NSC Rules and Guidelines
- Know About NSC Transfer Online
- National Savings Certificate Withdrawal Rules
- NSC vs FD
- NSC vs KVP
- NSC vs ELSS
- How to Use NSC as Security for Your Loans