There are a number of rules and guidelines to be followed when it comes to NSC. These rules have been formulated based on National Savings Scheme Rules 1987 and Government Savings Bank Act of 1873. These rules were implemented in May 1989.
The National Savings Certificate (NSC) is one of the most popular small savings schemes backed by the government which can be purchased from any general post office in India. NSC provides guaranteed returns, tax rebates as per section 80C of the IT Act, 1961 and NSC interest rates of 8.5% and 8.8% for NSC VIII (five years) and NSC IX (10 years) respectively. The interest, under this scheme, is compounded on a half-yearly basis. Given the tax benefits, simple documentation, easy accessibility and regular payouts among others, the National Savings Certificate is also sought-after as a retirement investment scheme in India. The various types of NSC accounts - single holder, joint certificate A and joint certificate B, can be opened in any head post office across the country.
Formulated as per the Government Savings Bank Act, 1873, the National Savings Scheme Rules, 1987, came into force in May, 1989. Some of the pertinent rules are listed below:
- NSC are not issued to Non Resident Indians
- There are three types of certificates available, namely, single holder type certificates, joint ‘A’ type certificates and joint ‘B’ type certificates. A certificate can be issued on behalf of a minor to an adult. Joint ‘A’ type can be issued to two adults (payable to both) whereas joint ‘B’ certificate is issued to two individuals (payable to either).
- NSC VIII has a tenure of 5 years whereas NSC IX has a 10-year duration.
- If an individual wishes to buy a NSC certificate, he or she has to submit an application form, in person or via an authorised agent.
- Certificates are issued in denominations of Rs.100/500/1000/5000/10,000 as notified by the centre.
- There are various modes of payment such as cash, cheque and demand draft in favour of the postmaster. Upon payment, a certificate is issued immediately by the post office. It is important to note that the date of the certificate will be the payment date.
A certificate can be transferred from one post office to another upon submission of an application form in the prescribed format. The postmaster may approve transfer for the following reasons:
- Transfer of the account of a deceased holder to his or her heir
- Account holder to a court
- Joint holders to one of the joint holders
- Single holder to joint holders
A postmaster will approve transfer of a certificate if the transferee is eligible to buy a certificate and if the transfer is done after one year of the purchase of the certificate
A postmaster can allow the transfer of a certificate as security to the following:
- President of India
- Reserve Bank of India
- Any scheduled bank
- Any local authority
- Cooperative society
- Housing Finance Company
- If a certificate is stolen, lost or defiled, an individual can apply for a duplicate by submitting an application to the post office where his or her certificate is registered.
- There cannot be more than one nominee, except certificates which have a denomination of Rs. 500 or above.
- No tax is deducted at source. However, the interest earned is reinvested in this scheme itself. Interest income can be categorised under the head ‘Income from other sources’. As a result, an investor can claim tax deduction as per section 80C of Income Tax Act, 1961. The interest income at maturity is, however, not tax-exempt.
- An individual who wants to encash a certificate on behalf of a minor should get a letter from guardian attesting that the minor is alive.
An investor can opt for premature encashment for the following three reasons:
- Forfeiture by a pledgee (gazetted officer)
- Demise of the account holder/holders
- Court order
- Upon completion of 5 years for NSC VIII and 10 years for NSC IX, the maturity proceeds can be encashed.
- If the maturity proceeds are not withdrawn, interest is accrued on the deposit for two years from the maturity date. However, the simple interest is calculated at the prevailing rates applicable.
- An account can be closed after three years from the date of the last deposit. If the account holder dies, the account can be closed at any time post his or her demise.