National Savings Certificate (NSC): Eligibility, Interest Rates, Features & Tax Benefits

If you are a risk-averse investor, there are various government backed initiatives that you can choose for safe and stable profit generation. National Savings Certificate (NSC) is an investment vehicle that you can consider in this regard. Continue reading this blog to find out more. 

What Is National Savings Certificate?

National Savings Certificate (NSC) is a low-risk government backed investment scheme. It provides a stable income with a fixed rate of interest that is compounded annually. All the interest earned over the investment horizon is reinvested into the scheme and the holder gets a lumpsum amount when the certificate matures.  

This financial product can be availed by any resident of India from post offices or banks and is perfect for those individuals who want to grow their capital with a low-risk investment. 

This investment scheme has a tenure of 5 years and the minimum amount that you need to invest is ₹1,000. The rate of interest is set and guaranteed by the Ministry of Finance, and it undergoes revision from time to time. Moreover, there is no maximum limit for investing in this asset. 

Types of National Savings Certificates

National Savings Certificates can be classified into three categories depending on their mode of holding. They are as follows:

1. Single holder type certificate
   This type of NSC is issued to a single individual. That person can appoint a nominee for his/her asset and even a minor can opt for this certificate via a legal guardian.  
2. Joint ‘A’ type certificate
   As the name suggests, a Joint ‘A’ Type certificate can be held by joint holders. Decision-making powers regarding this asset like adding, cancelling and transferring a nominee, lie with both individuals and upon maturity, the amount payable goes to both of them. 
3. Joint ‘B’ type certificate
   The Joint ‘B’ Type certificate has all the same aspects as a Joint ‘A’ Type certificate except that its maturity amount is payable to only one of the holders.  

Interest rates of NSC

Currently, interest rates for National Savings Certificates are announced by the Ministry of Finance every quarter. In the current quarter of Jan-Mar of FY 2022-23, interest rate on NSCs is 7%. Following are some of the NSC interest rates in the last couple of years:

Features of National Savings Certificate

The features of NSC are as follows:

• Fixed source of income
  National Savings Certificates have a fixed interest rate. It is guaranteed and backed by the government and gets compounded annually. Thus, by investing in this scheme, you can get a fixed source of income.  
• Flexible investment amount
  The minimum amount that you need to invest for holding an NSC is ₹1,000. After that, you can keep on adding money in multiples of ₹100 as per your choice. This feature makes National Savings Certificates a flexible investment vehicle.   
• Premature withdrawal
  Usually, before the 5-year lock-in period, you are not allowed to withdraw from your NSC earnings. However, under certain circumstances, like the death of the certificate holder, a court order to prematurely withdraw the investment is permissible.  
  Now, if you withdraw prematurely from the scheme within 1 year, you will only receive the initially invested amount. For withdrawals after 1 to 3 years, you will receive your initial investment along with the simple interest compounded annually.  
  Furthermore, if the beneficiary for your investment is a girl child, you can withdraw a partial amount to fund her higher education or marriage. However, this sum must not exceed 50% of the total investment. 
• Collateral for loans
  You can use your NSC investments as collateral for borrowing credit. This facility is available with banks as well as Non-Banking Financial Companies (NBFCs). 
• Transferable
  National Savings Certificates provide you with the facility to transfer your investment from one post office to another. Moreover, you also transfer your certificate to another holder. 
• Provision to add nominees
  As an NSC holder, you have the provision to add nominees to your asset. You can add only one nominee unless the certificate denomination is ₹500 or greater. If the person you are nominating is a minor, you have to mention the name of his/her legal guardian to the post office or Bank. 
  Furthermore, nomination facilities are not available in case the holder is a minor. 

Eligibility criteria for purchasing national savings certificate

Here are the NSC eligibility criteria that you must meet in order to invest:

Note – Non-Resident Indians (NRIs), Hindu Undivided Families (HUF), Public and Private Limited organisations and Trusts cannot make NSC investments. 

Documents required for NSC

This is the list of NSC documents you need to provide for making an investment:

• National Savings Certificate application form 
• Voter ID card, Aadhaar card, PAN card, driving license for identity proof 
• Telephone bill, Passport, electricity bill, bank statements as address proof
• A recent photograph

Purchase of National Savings Certificate (NSC)

You can purchase National Savings Certificates in three ways, which have been discussed below:

• Online

Here are the steps that you can follow to buy NSC online:

Step 1: First, you need to open a savings account at a National Bank or post office. 

The bank can be any public sector bank and in case of private banks, you can only go for Axis, HDFC and ICICI. Your savings account must be in one of these banks as the government has given them the authority to accept NSC deposits. 

Step 2: Then, you need to activate the Net Banking Services for your account. 

Step 3: Hereafter, you can access the net-banking portal in order to purchase the National Savings Certificate in e-mode.    

• Passbook mode 

You can buy NSC in passbook mode in case you do not have net banking services enabled in your account:

Step 1: Open a savings account at any public sector bank, private bank (HDFC, Axis or ICICI) or post office.

Step 2: Buy the NSC via a bank and they will issue an NSC passbook, where you can view all the transactions relating to your investment.   

Step 3: Get the passbook stamped and signed by an authorised official. 

In addition, if you have a National Savings Certificate passbook mode, you can get it converted to an e-format. 

To do this, you can visit the post office or bank from where you bought the certificate, provide all the necessary details and collect the e-certificate. The previously issued passbook will then be destroyed by the authorities.   

How to redeem NSC?

The steps to redeem an e-National Savings Certificate are as follows:

Step 1: Log in to the Internet banking account that you initially used to buy the NSC.  

Step 2: Raise a request for redemption. 

You will receive the maturity amount in your linked savings account. 

Now, if you have an NSC passbook, you can follow the steps given below for redemption:

Step 1: Go to the post office or bank branch from where you purchased the certificate.

Step 2: Take a redemption request form, fill in all the necessary information and attach the required documents.

Step 3: Submit the form. Your request will get processed and the money will be credited to your bank account.

Steps to add a nominee for NSC

You can add a nominee to your National Savings Certificate at the time of purchase. However, if you did not appoint one at that time, you can easily do it later by following a few steps. They are as follows:

Step 1: Collect Form 2 (for adding a nominee) or Form 3 (for changing a nominee) from the post office or bank from where you bought the certificate. 

Step 2: Provide all the nominee details to the P.O. or bank authorities.

Additionally, there are two things you need to remember in this regard:

• You cannot nominate anyone in case you are buying NSC on the behalf of a minor.
• If you do not have a nominee, the maturity amount will go to your legal heir in the event of your unfortunate demise during the investment tenure.

How to transfer an NSC?

When you relocate to a new location, you can transfer your National Savings Certificate to another bank or post office. To do so, follow the steps given below:

Step 1: Visit your bank/post office and ask for a Form NC-32. 

Step 2: Fill in all the account holder, certificate and nominee details.

Step 3: Submit the application.

Note – You can complete this process at the bank/post office both in your old or new location. 

Now, if you wish to transfer the ownership of your National Savings Certificate to another individual, you can follow these steps:

Step 1: You, as well as the person to whom you are transferring the ownership, will have to apply for the transfer process by filling out Form NC-34 Annexure 2. 

Step 2: After the application, an authorised official of the post office/bank will perform an investigation. If he/she does not find any issues, the ownership will be transferred to the new owner.  

After the process is complete, the bank/post office will revoke your access in case you have an e-NSC. If your certificate was in passbook mode, you have to submit it to the concerned authorities. They will remove your details and replace them with that of the new owner. 

However, before this transfer process can take place, there are certain things that you need to keep in mind:

1. For transferring an NSC, you need written consent from the issuing post office’s Postmaster.   
2. Transfer is only possible under the following circumstances:
3. In case the certificate holder dies. Under such circumstances, the nominee will become the new holder. 
4. When the court orders the asset’s transfer to another individual. 
5. For joint holdings, where the ownership is transferrable from one owner to the other. 
6. You can get legal sanction to transfer ownership only after 1 year from the certificate issuing date. 
7. If you hold the certificate jointly with another individual, signatures of both are necessary for transferring ownership. 
8. In case you are holding a National Savings Certificate on the behalf of a minor, you have to provide evidence that the child is alive and well and this is being done keeping his/her best interests in mind. 

Charges Associated with NSC

There is a charge of ₹5 that is payable under the following circumstances:

• Appointment of a nominee after purchasing the certificate
• Transfer of ownership 
• Issuing a duplicate certificate
• Changing the certificate’s denomination
• Encashing the NSC and collecting the Certificate of Discharge from the post office

Tax Benefits of NSC

Here are the applicable NSC tax benefits that you can avail by investing in this scheme:

• There is no Tax Deducted at Source (TDS) for the interest earned in NSCs.
• As per Section 80C of the Income Tax Act, you can gain a maximum tax benefit of ₹1.5 lakhs on your investment. 

Note – The interest that you earn in the first four years gets reinvested into the principal amount. Thus, they are applicable for deductions under Section 80C. However, in the fifth year, you receive the maturity amount along with the fifth year’s interest, which has tax implications. 

Advantages of investing in NSCs

Here are some of the advantages of investing in National Savings Certificates:

• They serve as a tax-saving low risk investment vehicle.
• The interest earned is compounded, allowing you to gain a higher maturity amount.
• They are easy to invest in from any post office or nationalised bank. 

Disadvantages of investing in NSCs

Some of the disadvantages of investing in National Savings Certificates are as follows:

• The rate of interest is fixed and does not have any inflation adjustment. 
• There is no option to reinvest your maturity corpus. You need to purchase a new certificate to reinvest in this scheme. 
• The online method of applying for NSC may not be available at all post offices and banks. 

Conclusion

Overall, NSCs are excellent options for low-risk investors. They are easy to invest in as one can simply visit a post office or a bank to get started. 

Moreover, as they provide stable returns during the investment horizon, these financial assets can be suitable for individuals who are new to investing.