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National Savings Certificate: A Safe Option

Jagrity Sharma Jagrity Sharma 29 August 2019

National Savings Certificate is a government-owned saving scheme that provides guaranteed returns on investment along with tax benefits. Get a detailed overview of NSC, including features and benefits.

National Saving Certificate

It’s obvious that you save your hard-earned money to meet your future financial goals. But instead of keeping it idle at home or in a bank’s savings account, it is wise to invest it in investment options available in the market to earn returns. Moreover, if you are concerned about the security of your money, there are a variety of options available where you can keep your money safe and earn excellent returns on it. National Savings Certificate (NSC) is one of the investment initiatives started by the government long ago.

What is the National Savings Certificate (NSC)?

NSC is considered a fixed income investment scheme which you can open in any post office across the nation. It is an initiative of the Government of India. NSC is said to be a saving bond which encourages the investors to invest their money with income tax benefits. NSC is similar to the fixed income instruments such as post office FD and Public provident Fund. The National Savings Certificate Scheme comes with a maturity period of five years. There is no upper limit on investment that can be made in NSC. The interest earned on NSC is added back to the principal value and compounded on an annual basis.

The primary attraction of National Savings Certificate for investors is that it is risk-free since the government of India backs it. The certificate comes with a sovereign guarantee. Hence, investors can be sure that their principal and interest amount are secured and they will get it back as promised. Apart from security, NSCs are also attractive as they offer good interest rates. The interest rates are decided by the government and are revised from time to time.

Eligibility criteria to invest in National Savings Certificate

Following is the eligibility criteria to purchase the National Savings Certificate.

  • The applicant must be an Indian citizen.
  • There is no minimum and maximum age limit to invest in NSC.
  • NRIs cannot invest in NSC.
  • Individuals can invest in NSC on behalf of a minor.
  • Trusts and HUFs are not eligible to invest money in NSC.

Key features of National Savings Certificate

The following are some of the popular features that make NSC an attractive investment option among investors.

  • Fixed income source: National Savings Certificate offers a regular source of income.

  • Tax saving investment: National Savings Certificate is the government-backed tax saving scheme. You can invest up to Rs. 1.5 lakhs to receive the income tax benefits under Section 80C of the Income Tax Act, 1961.

  • The fixed rate of interest: Interest rates are revised quarterly according to the prevailing interest rate of government bonds. Once you purchase NSC, the interest rate will remain fixed for the five-year term of the scheme. Currently, the rate of interest effective from 01.07.2019 is 7.9% compounded annually, but payable at maturity.

  • Fixed maturity period: The NSC comes with a fixed maturity period of five years.

  • Easy to access: You can purchase a National Savings Certificate from any of the post offices across the nation. You need to submit some necessary documents to complete the KYC process. You can even transfer your NSC from one post office to another with minimum formalities.

  • Loan facility: All major banks and NBFCs in the country accept NSC as a security against the loan.

  • The power of compounding: The interest earned on NSC has compounded annually and reinvested with the principal amount.

  • Suitable for small investments: The NSC is one of the best investment options for investors who wish to save a small amount regularly. You can invest as low as Rs. 100 or in a multiple of Rs. 100 to start the investment in NSC.

  • Withdrawal facility: The amount invested in NSC can be withdrawn before maturity only upon the death of the primary certificate holder.

  • Regularity: Since the minimum amount of investment is quite small, you can make sure to invest a small amount regularly. You can invest money in NSC on a monthly, quarterly or yearly basis.

Why should you invest money in National Savings Certificate?

NSC comes with a set of benefits, which makes it an attractive investment avenue.

  • One of the primary advantages of investing in NSC is tax benefits you get on the returns that you have earned. Moreover, the scheme offers guaranteed returns. Many people prefer to invest in NSC as it provides a regular source of income after retirement.
  • Except for the interest earned in the year of maturity, the remaining interest income is tax-free.
  • A duplicate certificate can be obtained in case you lose the original one.
  • You can continue investing in National Savings Certificate Scheme even after maturity.
  • You have an option to transfer the certificate to another entity. However, the transfer is allowed only once during the lock-in period.
  • NSC is one of the safest investment instruments in India, as it is backed by the government. You can sit back and relax because your money is in safe hands.

Tax implications under National Savings Certificate

Given below are the tax benefits that you can avail by investing NSC.

Tax benefits on investment up to Rs. 1.5 lakh can be availed under Section 80C of the Income Tax Act, 1961. The interest earned on a yearly basis is considered as a fresh investment for tax purpose.

One of the significant advantages of investing NSC is that TDS (Tax Deducted at Source) is not applicable under the scheme. However, as per your income tax slab, the income tax must be paid for the interest income.

NSC scheme was mainly intended to protect the investment. This means protecting the value of your investment against inflation. You can consider NCS to park your money and save income tax at the same time. It goes without saying that cautious investors should go for investment products that involve minimal risk. National Savings Certificate scheme was introduced soon after independence to encourage savings among Indian residents. NSC was a very popular investment option then and continues to retain popularity even today.

Recommended Read: Right Way to Invest in the National Pension Scheme

Jagrity Sharma
Written by Jagrity Sharma
A bibliophile who hates alliterations, but loves cream, comics and content immensely! On another note, a content marketer who leverages the power of words to explain...almost anything!