National Saving Certificates: Smart Investment Strategies

The National Savings Certificate (NSC) is a government-backed savings bond introduced in the 1950s to encourage savings and provide safe investment avenues for individuals. It is deemed an extremely secure investment choice, with the assurance of the Government of India. NSCs are available for purchase at any post office branch across India and offer a fixed-income investment program with assured returns. The interest rates are reviewed by the Ministry of Finance every quarter and currently stand at 7.7% per annum. The investment process is simple, with options for offline (physical certificate) and online (e-mode) purchases. The minimum investment required is Rs. 100, with no maximum limit, making it accessible to investors across different income brackets.

Where to buy NSC

The National Savings Certificate (NSC) is a Government of India savings scheme introduced in 1989. It is a popular investment option, especially among small and medium investors, due to its tax benefits and attractive return rates.

NSCs are available for purchase at any post office branch across India. You can also buy NSCs online if you have a savings account with a post office and have internet banking access. The NSC form can be purchased in two ways: electronic mode (e-mode) or passbook mode. Paper certificates are no longer available, so to purchase the certificate, you will need a savings account with a bank or post office.

• Go to the nearest post office branch.
• Obtain the NSC application form (Form-1) and fill in the required details.
• Gather the necessary supporting documents, including a recent photograph, identity proof, and address proof.
• Deposit the investment amount. You can pay in cash, by cheque, or through a demand draft.
• Collect and review the issued NSC certificate from the post office.

If you want to buy NSCs online, follow these steps:

• Open a savings account with a national bank or post office that accepts deposits under the NSC scheme.
• Activate net banking services for your account.
• Purchase the NSC form in electronic mode through the bank's online portal.

Key Things to Note

• The minimum investment required for NSC is Rs. 100, and there is no maximum limit.
• NSCs currently have a maturity period of 5 years.
• The interest rate for NSCs is determined and guaranteed by the government for the entire investment duration.
• NSCs are deemed extremely secure as they are backed by the Government of India.

Who can invest in NSC

The National Savings Certificate (NSC) is a government-backed savings bond that offers small investments and tax-saving benefits. It is available to resident Indian citizens only, with no age limit. This means that adults can invest in NSC individually, on behalf of a minor, or jointly with another adult.

However, there are some restrictions on who can invest. Non-resident Indians (NRIs) are not permitted to buy NSCs. Additionally, public and private limited companies, trusts, and Hindu Undivided Families (HUFs) cannot invest in this scheme. Nevertheless, the head of a HUF can invest in their own name.

How to buy NSC

National Savings Certificates (NSCs) are a safe, government-backed investment option in India. They are a good choice for those looking to reduce their taxable income while earning a fixed return on their investment. Here is a step-by-step guide on how to buy NSC:

Offline Mode

• Go to the nearest post office: NSCs are available for purchase at any post office branch across India.
• Complete the NSC application form: Obtain the form either from the post office or online. Fill in your details, the preferred deposit amount, the chosen maturity period (currently limited to 5 years), and nominee information, if applicable.
• Provide KYC documents: Submit self-attested copies along with the original documents of your identity proof (such as an Aadhaar card, PAN card, etc.) and address proof (like an Aadhaar card, voter ID, etc.).
• Complete the payment: You have the option to pay in cash or by cheque. The minimum investment required is Rs. 100, and there is no maximum limit.
• Receive your NSC certificate: The post office will generate and issue the physical certificate to you. Ensure to store it securely as it serves as evidence of your investment.

Online Mode

• Utilise your DOP internet banking: If you hold a savings account with a post office and have internet banking access, you can make online investments in NSCs.
• Access DOP Net Banking: Navigate to “General Services” and click on “Service Requests”.
• Click on New Requests: Opt for “New Requests” and then select “NSC Account – Open an NSC Account (For NSC)”.
• Decide your investment amount: Input the deposit amount and select the debit account associated with your PO savings account.
• Agree to the terms and conditions: Agree to the terms and conditions and provide your transaction password.
• Download the deposit receipt: This serves as confirmation of your online investment.

Documents required for NSC

To invest in the National Savings Certificate (NSC) scheme, you will need to submit the following documents:

• The NSC application form, which can be obtained from a post office or online.
• A valid identity proof document, such as a PAN card, Aadhaar card, senior citizen ID, passport, voter ID, or driving license.
• Address proof, such as bank statements, phone bills, electricity bills, or a passport.
• A recent photograph.
• A cheque, which may also serve as address proof.

In addition to these, you may also need to provide self-attested copies of the documents along with their originals for verification.

Tax benefits of NSC

The National Savings Certificate (NSC) offers tax benefits to investors under Section 80C of the Indian Income Tax Act. Here is a detailed overview of the tax benefits of investing in NSC:

Tax Deduction

The amount invested in NSC is eligible for a tax deduction under Section 80C. The maximum deduction allowed under this section is Rs. 1.5 lakh in a financial year (subject to any changes in tax laws). This helps individuals reduce their taxable income and potentially lower their tax liability.

Exempt at Maturity

While the interest earned on NSC is not tax-free, it is deemed reinvested and qualifies for tax exemption under Section 80C. This means that the interest is not taxed each year but is taxed only at the time of maturity or withdrawal.

Tax Deferral

The interest earned on NSC is not taxed annually, providing a tax deferral benefit. Investors can defer the tax liability on the interest until the maturity of the NSC, allowing the investment to grow over time.

Cumulative Tax Benefit

NSC tax benefits can be combined with other eligible investments and expenses under Section 80C. This includes life insurance premiums, provident fund contributions, tuition fees, and more. The combined deduction under Section 80C cannot exceed the specified limit.

Interest Computation

The interest earned on NSC is compounded annually, which means it is reinvested into the certificate. This allows investors to earn interest on the interest, resulting in accelerated growth of their investment.

Tax Treatment of Interest

During the first four years, the interest accrued on NSC is assumed to be reinvested, making it eligible for a tax credit within the overall annual limit of Rs. 1.5 lakh. However, the interest earned in the fifth year is not reinvested and is consequently taxed at the investor's applicable slab rate.

Frequently asked questions