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

218 comments

  • Bhasyakarulu Kottakota

    Hi Suresh,

    I have purchased NFC bounds when I was in India. Now I am in USA and unable to encash those bonds. Will they earn any interest after maturity.

    Thanks in advance.

  • deepak

    Hey Suresh,

                         How Are you doing?, despite being a fresh graduate from college, i still enjoy reading your articles, ok my q is can i open the nsc in any of the desired locations?? and what is the eligibility and documents required for the same and so give me the with drawal procedure and also can i break it in between?

    • Deepak, Thanks, I am fine. NSC is a investment product and not account. You can purchase this from any post office across the country. However you can get maturity amount only from the post office where you purchased. There is no eligibility. You can just pay money and buy them. You need to specify address while filling the form. You cannot break it. But you can get loans from banks in case of any urgency. But why do you want to invest. Unless you are clear about your objective, don’t just invest. If you are looking for tax saving options, ok, but since you are a fresh graduate, I do not know whether your income exceeds taxable income or not.

  • sunny

     

    Hi, I had invested 10000 in NSC and it gets matured on March 2013. But I withdraw the amount in April 2013. I have shown this NSC amount under 80C when I created it (i.e. FY 2006-2007). Can you please let me know when should I pay tax on the interest earned? Should I pay tax on FY 2012-2013 as it was matured on March 2013 or should I pay tax on FY 2013-2014 as I withdraw the amount in April 2014?

    • Sunny, Generally interest earned has to be shown in the same financial year. As per my knowledge people would show this as “Income from other sources” and this interest can be claimed under 80C. Means if you have not exhausted 80C, you can add this as income as well get exemption in 80C so that the interest would not get taxable. Since the amount pertains to last year, you should include in your income and check whether your 80C is exhausted. If not, you can claim as exemption under that. Else you need to pay tax

  • Anu

    Hi,

    I have bought NSC certificates over a few years from Chennai and Bangalore, now most of them have matured, and maybe some over 2 years…but I live in Mumbai. Is it possible for me withdraw it in Mumbai or will I have to go back to the PO of origin? Or can I post it? or is there any other option?

    Thanks in advance for your reply!

    • Anu, You cannot withdraw NSC from other places. You should go back to place where you originally purchased. However, you can transfer the NSC from one place to another place when you move on transfer and then take refund from your new address.

  • bemoneyaware

    Thanks for info. You saved me a google search

    But I want to know more about taxability of interest in NSC – I mean when do I have to pay tax – every year or at end?

    • Hi Kirti, Point no.1) If we are showing the accrued interest every year under “Income from other sources”, then we can claim interest income as deduction under section 80C. Means we are showing as income and tax exemption, net there is no impact on tax. We can show this from 1st year to 4th year. This is based on the assumption that we are reinvesting the interest. However after 5th year, you are not re-investing, actually it is maturing, hence you cannot claim 5th year interest as benefit.

      Point no.2) If you are not showing as income and getting tax benefit every year, after maturity, entire interest amount would be treated as “Other income”  and would be taxed as per individual income tax slab.

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