National Savings Certificate (NSC)

This page provides all the details you need to know about National Savings Certificate (NSC).

Table of Contents

 

What is NSC?

NSC stands for National Savings Certificate.

NSC is a savings scheme certificate that you can purchase from a Post Office.

 

How does NSC work?

  • Deposit a lump sum amount and purchase NSC certificate

  • At the end of 5 years, submit the certificate and get the maturity amount (deposit amount + interest earned)

 

Features

  • Backed by the Government of India

  • Safe investment option

  • Guaranteed returns

  • Helps you to invest as little as Rs. 1,000 thereby encourages the habit of investment

  • Scheme specially designed for Income Tax assesses

  • NSC Certificates can be kept as collateral security to get loan from banks

  • Buy NSC every month for Five years. Re-invest on maturity and relax. Upon retirement, it will fetch you monthly pension as the NSC matures

 

Income Tax Benefits

Effective 01-Apr-2020, the income tax benefits will depend upon whether you choose old tax system or new tax system.

Old Tax System:

The deposit amount (up to Rs. 1.5 Lakhs) will qualify for tax deduction under Section 80C of Income Tax Act.

The yearly interest accrued needs to be declared under section "Income from other sources".

The yearly interest accrued in this scheme is considered to be re-invested under Section 80C of Income Tax Act and hence eligible for tax deduction.

So, "Income from other sources" and "deduction under Section 80C" cancel each other and make this scheme tax free on interest.

Only the interest earned in the last year (5th year) is taxable as it is not re-invested and it is paid back to the investor.

No TDS (Tax deduction at source) in this scheme by Post Office.

 

New Tax System:

No income tax benefits. The deposit amount won't get any deduction benefit under section 80C of Income Tax Act.

The yearly interest accrued needs to be declared under section "Income from other sources".

The yearly interest accrued in this scheme is considered to be re-invested under Section 80C of Income Tax Act and hence eligible for tax deduction.

Hence, "Income from other sources" and "deduction under Section 80C" cancel each other and make this scheme tax free on interest.

Only the interest earned in the last year (5th year) is taxable as it is not re-invested and it is paid back to the investor.

No TDS (Tax deduction at source) in this scheme by Post Office.

 

Who can Open the Account?

Only Indian residents can purchase NSC certificates.

NSC certificate can be purchased by

  • an adult for himself

  • an adult on behalf of a minor or a person of unsound mind of whom he is the guardian

  • a minor who has reached the age of 10 years

  • joint account by up to 3 adults

 

You can purchase any number of NSC certificates.

 

How do You Open the Account?

NSC certificate can be purchased by cash or cheque.

In case of cheque, the date of realisation of cheque in the account will be the date of account opening.

 

Deposit Limits

Minimum deposit amount is Rs. 1,000

No maximum limit on the deposit amount.

Deposit amount should be in multiples of Rs. 100. For example, Rs. 1,100, Rs. 1,200, Rs. 1,300, Rs. 1,400, etc.

 

Maturity Period

Maturity period is 5 years.

Earlier, there used to be 10 years NSC as well. But, it has been dis-continued since 20-Dec-2015.

 

Interest Rate (%)

Current annual interest rate is 6.80%.

Interest rate (on the day of account opening) will remain the same throughout the tenure of NSC. It will not change even if there are changes to the interest rate thereafter.

From 01-Apr-2016, the interest rate of this scheme has been announced on a quarterly basis. Note that this used to be on a yearly basis earlier.

 

Compounding Frequency

From 01-Apr-2016 onwards, yearly compounding frequency has been followed in this scheme.

Note that it used to be on half-yearly compounding frequency earlier.

 

NSC in Passbook mode

Before 01-July-2016, when you invest in NSC, you used to get physical Certificate.

From 01-July-2016 onwards, Government has decided to discontinue the physical certificates.

Instead, you will be given the option to keep NSC in Passbook format.

This is similar to the passbook of the Savings Bank (SB) account.

After purchasing NSC, the entries will be made (either printed or manually) in the passbook.

 

Loss of Certificate

If you lose or lost the certificates that you purchased before 01-July-2016, you can apply for duplicate certificate.

But, instead of a certificate, you will get Passbook and it will have the certificate number of the old lost certificate.

If you lose the NSC Passbook that you purchased after 01-July-2016, you can apply for and get duplicate Passbook by paying required fees.

 

Pre-Mature Closure

You can close NSC pre-maturely before the maturity period.

But, it is allowed only in the following special circumstances.

  • death of the account holder or holders in case of joint holding

  • when ordered by Court of Law

 

Earlier, you had to surrender the physical certificate to close your NSC pre-maturely.

For the NSC purchased after 01-July-2016, you have to surrender the NSC Passbook to close your NSC pre-maturely.

Post Office will collect the Passbook and make an entry for delivering the final amount to you.

 

Loan Facility

You can use NSC certificate as a collateral security to get Loan from the Banks.

Earlier, you had to submit or pledge the certificate in the Bank to get the Loan.

But, for the NSC purchased after 01-July-2016, you have to submit the Passbook.

 

Account Transfer

NSC certificates can be transferred from one Post Office to another Post Office.

NSC certificates can be transferred from one person to another person. But, it can be done only once from date of issue to the date of maturity.

Earlier, the physical certificate of the old owner used to be given to the new owner during the transfer process.

But, to transfer the NSC purchased after 01-July-2016, the old owner should submit the Passbook.

Post Office will strike out the entries belonged to the old owner and issue the same Passbook to the new owner in his name.

 

Nomination Facility

Nomination facility is available.

You can nominate either at the time of buying the certificate or after buying the certificate (but before maturity).

 

NRI and HUF

NRI (Non Resident Indians), Trust and HUF (Hindu Undivided Family) can not open the account.