National Saving Certificates (NSC) – A Complete guide

National Saving Certificates – A Complete guideNational Saving Certificates – A Complete guide

National Saving certificate is issued by Post Offices in India and is a very good small saving scheme. Do you know that investment in NSC can be created in such a way that it provides regular fixed income and can be used as one of the retirement planning options?

In this article we would discuss complete details about National Saving Certificate, how this is used for reducing tax, how the interest income is taxed and how to use this to create regular monthly income.

Features of National Saving Certificate (NSC)

National Saving Certificate is issued by Post offices and is backed up by the Govt. of India.

  • NSC’s are available for 5 and 10 years period
  • NSC’s are available for a minimum investment of Rs 500 and in multiples of Rs 500 / Rs 1,000 / Rs 5,000 / Rs 10,000
  • There is no maximum limit
  • Interest rates are 8.5% p.a. for 5 year NSC (VIII) and 8.8% p.a. for 10 years NSC (IX)
  • Rs 100 invested in 5 year NSC would fetch Rs 151.62 and in 10 year would fetch Rs 234.35
  • Interest is compounded every half year
  • Nomination facility available
  • Individuals, Joint individuals and minor supported by guardian can invest NSC.
  • Societies / Companies cannot invest in NSC. However NRI's can invest in NSC.
  • NSC's can be purchased at post offices by filling up the application form along with ID proof.
  • NSC's are not available online

How NSC’s are useful?

National Saving certificates are purchased mainly for tax saving purpose. Investment up to Rs 1 lakhs can be claimed under 80C for income tax purpose.

NSC’s provide assured returns. Currently the interest rates are 8.5% p.a. for 5 years NSC and 8.8% p.a. for 10 year NSC

Also read: Is Post office term deposit is better than Bank FD?

Liquidity and premature withdrawal

From liquidity point of view, these can be pledged with banks for loan purpose. Premature withdrawal is not permitted.

Taxability

Investment in NSC up to Rs 1 lakh is exempted from income tax under section 80C.

The interest income on NSC is assumed to be re-invested. From taxability point of view, this needs to be added under “Other income” and the same can be claimed as exemption under section 80C. In case, any individual has already exhausted Rs 1 lakh exemption under 80C, it becomes taxable income.

Any interest amount not taxed (accrual basis) every year becomes taxable at maturity. Means the interest income at maturity is NOT tax free.

Maturity

There is no TDS deducted by post office on interest income. It should be declared by individual as taxable income either every year or during maturity.

If NSC’s are not withdrawn, it would be eligible for interest at prevailing post office savings scheme (which is currently 4% p.a.) for a maximum period of 2 years.

You can transfer NSC from one post office to another post office before maturity by submitting an application form.

Also read: All about Small saving schemes / Post office saving schemes

How to buy NSC Online?

There are questions asked by our readers earlier on various comments, saying can we buy NSC Online? Currently Post office is not offering NSC Online. But if this enabled by Post office, it would be really good that one can straight away buy NSC online as this is safe investment.

Creating regular income from NSC’s for retirement

No wonder this investment option can be used for even retirement planning or to get regular fixed amounts.

Invest in NSC (NSC-IX-10 years) every year for 10 years.  After 10 years, you would get regular assured amounts for subsequent 10 years. Since the capital and returns are protected and backed up by Govt. of India, this can be used as a best retirement planning option.

Year of investment Amt invested (Rs) Maturity date Maturity (Rs)
2013 1,00,000 2023 2,34,350
2014 1,00,000 2024 2,34,350
2015 1,00,000 2025 2,34,350
2016 1,00,000 2026 2,34,350
2017 1,00,000 2027 2,34,350
2018 1,00,000 2028 2,34,350
2019 1,00,000 2029 2,34,350
2020 1,00,000 2030 2,34,350
2021 1,00,000 2031 2,34,350
2022 1,00,000 2032 2,34,350

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Suresh
National Saving Certificates

Suresh KP

218 comments

  1. Hi,

       Thanks a lot explaination on NSC.I have 1 small doubt lets say I have got a NSC for Rs.10,000 this year 2013-2014(F.Y) and show it under 80C I will not have to pay tax for Rs.10,000 ( for 10% slab Rs1,000).Now I should pay tax for

    1)At the end of the 5th year for 10,000+ the interest amount                   OR

    2)Every Year only for the interest amount say 8.5% i.e. Rs.850              OR

    How much tax should I pay and for which year should I pay

     

    Thanks in advance

    1. Harish, 1) You would claim Rs 10,000 u/s 80C and you would get exemption from taxable income upto Rs 10,000 (max of Rs 100,000 u/s 80C) 2) The interest is accrued every year. Means this should be treated as “Income from other sources” and pay tax on that. However you can claim this amount u/s 80C again after 1st year. Means once you complete 1 year, you can include Rs 850 u/s 80C and claim deduction and also show “Income from other sources”. Net you need not pay tax. The catch is if you already exhausted Rs 100,000 u/s 80C. You cannot claim NSC Rs 850 interest. Then you need to show this Rs 850 as income from other sources and pay necessary tax. This you should pay after one year completion, 2nd year completion…. till the NSC matures.

    2. Thanks Suresh,

      Also few of my friends were telling that we can should this 10,000 under 80C in for the 5 years and get exemption from Tax which I was finding difficult to agree.Now got cleared

      2013-2014- Buy Rs.10,000 NSC get Tax exemption depending on tax

      2014-2015  show Rs850(Interest from NSC) under other income and pay tax for it OR get exemption for this Rs850 if we have not completely used 1Lakh under this year 80C

      2015-2016  same as above  2016-2017 same as above  2017-2018 same as above 

      Even if it is Rs10,000/ Rs.1 Lakh same procedure

      Thanks a lot Thing is dont understand this tax,interest,investment etc I am very very weak in those thats why so lengthy explaination 😀 😀

      1. No one would agree that you are weak. You have very well explained. BTW what do you do and where do you invest money? What your friends say about good investment options ? Feedback would help me where people are putting their focus so that my articles would be based on that

  2. Hello

    Can you please advise me the procedure for redemption of NSC certificates.

    Are there any separate forms and where I can get them as I am presently out of India.

    Are there any forms available online?

    1. Marita, There are no seperate forms available. You need to surrender your original NSC certificate by signing the documents. Based on this, Post office would issue a cheque. I do not know whether post office people would accept orignal NSC certificates other than you as you have invested in them. If your family members are there, you can try that

      1. Hi Suresh,

        A follow up question here.. was trying to find out what documents are needed for redemption? Also, how much in advance can i go ahead and apply for redemption? My NSC matures on 29/12/2013. Will the Check reach me on my new address if there is a change of address? Is there a procedure where i can get our great Indian Post Office to transfer the amount to my bank account directly, if yes, how much time are we looking at. Forgive my Skepticism when it comes to the IPO, i have had terrible experiences every time i stepped into a post office. Sorry for multiple questions 🙂

        1. No problem Mike. You can get redemption at the date of maturity. You cannot do it in advance. When you handover your NSC document, they would give then and there a cheque for the maturity amount. As per my knowledge they would issue cheque and cannot transfer the money to any account. 

  3. Hi suresh,

     

    i invested INR 10000 in NSC in October,2002, which matured in 2008 with maturity amount of INR 16959. Since I moved abroad around 2005, I forgot to claim the amount till lately. I submiited the certificate on 2nd September, 2013 to the post office.  kindly inform what would be the amount which I am entitled from post office. I am yet to get to clarity on this issue from post office. will there be any tax deduction by the post office while issuing the total amount?

     

    1. Hi Gireesh, Post office would not deduct any TDS. You should get 8.5% interest rates for 2 years and after you wuld get only saving banks interest rates of 4% per annum. 

  4. I HAVE BOUGHT NSC IX IN THE NAME OF MY DAUGHTER WHO IS MINOR BUT BY MISTAKE HER DATE OF BIRTH HAS BEEN WRITTEN WRONG IN THE NSC CERTIFICATE WHAT PROLEMS CAN COME AT THE THE TIME OF MATURITY OF NSC.

    1. Hi Twinkle, Yes there could be problem at maturity. My suggestion is to go and amend this with Post office now. They can modify and put a stamp so that you would not face any problems in future. 

      1. Hi Suresh,

        As I mentioned earlier that an NRI is allowed to invest in NSC, I am attaching the guidelines of RBI regarding this. Please read where it says in bold-"NRI may, without limit, purchase on non-repatriation basis."

        Non-repatriation is the only condition that applies to an NRI.

        Another reference is myself, I m an NRI and I have NSC's.

        Hope it helps!

        kapil

         

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