Introduction:

Investors should align their investment choices with their individual financial objectives. As an investor, you can opt for high returns with high risks or opt for fixed-return schemes that provide superior risk-adjusted returns. Various government-backed fixed-income schemes, including National Savings Certificates , offer both guaranteed returns and advantageous income tax deductions under Section 80(C) of the Income Tax Act.

National Savings Certificate (NSC):

National Savings Certificates , among the oldest government-backed programs, are part of the Indian government’s popular fixed-income investment initiatives. Designed to offer a secure and reliable investment avenue while fostering small savings, NSCs are ideal for individuals seeking guaranteed returns and tax savings of up to Rs 1.5 lakh. Before diving into detailed discussions on certificate types, nomination options, withdrawal procedures, cancellation, and transfer policies, it’s essential to establish a foundational understanding of the NSC scheme. Exploring its return generation, taxation policies, benefits, investment procedures, and requirements sets the stage for a comprehensive guide that taxpayers can depend on.

National Savings Certificate remains a standard deposit that can be obtained through any postal branch pioneered by the Government of India This scheme aims to encourage consumers, especially those who small and medium-sized investors, to invest while at the same time enjoying income tax savings.

Features and Benefits:

Here are the key highlights of the National Savings Certificate scheme:

• Fixed Income: Currently, National Savings Certificate scheme provides a return of 7.7% for subscribers, surpassing the returns offered by fixed deposits.
• Nomination: An investor can appoint a family member, even a minor, to receive the investment in the unfortunate event of the investor’s death.
• Small Investment Amount: Individuals can initiate their investments with as little as Rs. 1,000.
• Types: The system presents two types of certificates — NSC IX Issue and NSC VIII Issue. However, the government rejected the NSC IX claim in December 2015. As a result, individuals can now enroll only in the NSC VIII claim.
• Loan Collateral: NBFCs and banks accept NSC as security or collateral for secured loans. To facilitate this, the branch postmaster must transfer the certificate, affixing a transfer stamp, to the relevant bank.
• Maturity Period The National Savings Certificate scheme matures after 5 years.
• Corpus Post Maturity: Following maturity, individuals can claim the total maturity value. Since NSC payments are not subject to TDS (Tax Deducted at Source), investors are responsible for settling the associated taxes.
• Premature Withdrawal: Exiting the scheme before maturity is not permissible for individuals. However, withdrawal requests may be accepted in the event of a court order or the investor’s demise.
• Interest Rate: Currently set at 7.7%, the interest rate is subject to quarterly revisions by the Government of India. Moreover, this interest is compounded annually and becomes payable upon maturity.
• Tax Benefits: Under Section 80C of the ICT Act, one can claim deduction of excess tax of Rs. 1.5 lakh for investment in National Savings Certificate scheme.
• Power of Compounding: The interest earned on this investment is reinvested. Thus investors benefit from the benefits of compounding.
• Easy Investment Process: Purchasing National Savings Certificate scheme from a post office branch involves completing the KYC verification procedure and submitting the necessary documents to finalize the application. Additionally, transferring the certificate to another branch is a straightforward process facilitated by the post office.

Who Should Invest:

• Individuals looking for low-risk investments with stable returns may consider National Savings Certificate scheme. This tax saving is available only to individuals resident in India; Trusts, HUFs (Hindu Undivided Families), and NRIs are not eligible for this scheme.
• While the National Savings Certificate offers full capital protection and guaranteed interest rates, it may not provide as much return as tax-saving savings plans. However, there are many benefits to explore. Detail the features and benefits of this system in the next section.

Tax benefits of NSC:

• Though there is no upper limit on the amount that can be invested in National Savings Certificate scheme, it is an investment of Rs. 1.5 lakh per annum qualifies for the tax exemption under Section 80C of the Income Tax Act, 1961. Besides, the interest earned on the certificates is refundable and tax deductible.
• Furthermore, in the initial four years, the accrued interest on National Savings Certificate scheme is presumed to be reinvested (i.e., added back to the initial investment), making it eligible for a tax deduction, subject to the overall annual limit of 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.

How to invest in NSC:

Previously, physical National Savings Certificate scheme certificates were issued by banks or post offices, a practice that ceased in 2016. Currently, certificates are obtainable through either electronic mode (e-mode) or Passbook mode.

While the passbook method may be unpopular and a bit cumbersome, buying an National Savings Certificate scheme plan from an authorized bank at an authorized bank or post office is effortless, but it is important to note that this system requires internet banking.

Investing in National Savings Certificate Online:

• Log into your Department of Posts (DOP) online banking account.
• Select ‘Service Requests’ from the ‘General Services’ menu.
• Click on “New Requests” and select “NSC Account – Open National Savings Certificate scheme Account (For NSC)”.
• Select the debit account associated with your PO bank and record the deposit.
• Click “Click Here” to review the Terms and Conditions. After reviewing, accept them.
• After entering the transaction password, click on “Submit.”
• You can then view and download the saved document. Again, log in and go to ‘Accounts’ to access your NSC account details.

Documents required: 

Investors should submit the following:

• Investors must submit identity proof, such as a passport, permanent account number (PAN) card, driver’s license, senior citizen ID, or any other official government identification.
• Investors must also provide a photograph and address proof, such as an electricity bill, passport, phone bill, or bank statement.

Steps to Obtain a Duplicate National Savings Certificate:

• You can request a duplicate National Savings Certificate scheme certificate if your original one is lost, stolen, destroyed, damaged, or mutilated.
• Simply fill out and return the Duplicate Savings Certificates form to the post office that issued the National Savings Certificate scheme requiring replacement.
• The form includes the following key fields:
• serial numbers, denominations, dates of issue of National Savings Certificate scheme, and other pertinent information relating to the certificate(s).
• The date of purchase of the certificates.
• The purpose of the duplicate requested certificate, and other information, must be provided.

Eligibility for NSC:

• Below are the eligibility criteria that one must meet to invest in National Savings Certificate scheme:
• An individual must be a resident of India.
• Trusts and HUFs cannot invest in NSC (National Savings Certificate) Issue VIII.
• The government issues NSC in denominations of Rs.10,000, Rs.5,000, Rs.1,000, Rs.500, and Rs.100.
• There is no maximum limit for the investment amount.
• There is no minimum or maximum age limit for investing in NSC.

Disadvantages of NSC:

• Every investment scheme has its drawbacks, and NSC is no different. The disadvantages of the National Savings Certificate include:
• Once you’ve purchased an NSC of a specific denomination, you cannot reinvest in the same NSC at a later date. For example, purchasing an NSC worth Rs. 1,000 constitutes the initial investment amount. You cannot add to this initial investment. Each time you wish to invest in NSC, you must buy a new one rather than adding to previously purchased NSCs.
• As the interest rate on NSC is fixed based on the prevailing rate at the time of purchase and cannot be adjusted afterward, it will consistently generate a fixed return. However, this return may not keep pace with the rising rate of inflation.

Final Word :

It is fair to conclude that NSC is an attractive investment plan, with advantages including income tax benefits, guaranteed return on investment, shorter maturity and it also includes the opportunity to manage NSC accounts from home. In addition, you have the right to transfer or add a nominee to your NSC, ensuring that in any unforeseen circumstances, the investment can be inherited by the nominee.