National Savings Certificate: Calculator, Interest Rate & Taxability

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What is National Savings Certificate (NSC)?

NSC, or National Savings Certificate, is a Government Savings Bond that is useful for small investments and tax savings. These certificates can be acquired by any Indian resident from any post office across India. It is a low-risk Government-backed initiative with a fixed return. This is usually preferred by investors who are unwilling to take risks or people who wish to expand their base by a fixed return initiative.

You can invest in NSC from the nearest post office in your name, for a minor, or with another adult as a joint account. NSC comes with a fixed maturity period of five years.

There is no upper limit for investments in the National Saving Certificates, but investments of up to Rs 1.5 lakhs in NSCs are liable for a tax reduction under section 80C of the Income Tax Act.

NSC - Summary

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How Does Investing in NSC Generate a Return?

NSCs are a short-term investment option in which you make an initial investment, earning a return at a rate fixed by the government. Once you have invested in the certificate, your interest for the year will be added to your investment, restricting you from investing more in the same certificate. However, you can invest your desired amount in another certificate, which can be purchased from any post office. The interest rate will remain fixed for the tenure of the certificate and is equal to that offered at the time of purchase.

For NSCs, the interest is compounded annually; it offers a higher return than any other scheme in which you would just earn simple interest (e.g., fixed deposits). This means that the interest earned in a year is added to the principal for calculation of interest for following years. Also, you have the option of opting for tax exemption on interest earned under section 80C, further increasing the net return from the investment. Combining the benefits from tax savings on the initial investment, tax savings on interest earned, and the guaranteed returns offered makes NSC a favored investment option.

The major difference between NSC and other saving schemes is the computation of interest. In NSC, the interest earned for one financial year is added to the principal amount for the next year. To understand this better, let’s take an example. Suppose you have made an investment of Rs. 100 in National Saving Certificate and the interest is computed annually at the 8% rate and will be payable at maturity. After the maturity period (5 years), the investment will grow to Rs. 144.23. Another major difference between NSC and other saving schemes is that in NSC, the income earned, that is, the return on investment, can be considered for tax exemption, while it is not possible for all other tax saving schemes.

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Who Can Invest in NSC?

Any individual interested in investing in NSC must -

• Be a resident of India.
• Age is not a restriction; in the case of a minor, an adult can issue a certificate on his behalf. Under these circumstances, the adult must be the legal guardian of the minor.
• Possess Identity and Residential Proof (in the form of an Aadhaar Card, PAN Card, Voter ID, driver's License, or any other document required by post office/bank).
• Non-residents cannot invest in National Saving Certificates. However, if a resident holding an NSC certificate becomes an NRI, then they can hold the certificates till maturity.
• This scheme is for individuals and restricts Trusts and Hindu Undivided Families from making investments in NSCs. However, a karta of a HUF can invest in the NSC in his/her own name.

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Features & Benefits of NSC

Here are some key features and benefits of NSC:

The National Savings Certificate (NSC) offers several features and benefits to investors. Here are some key features and benefits of NSC:

• Rate of Interest: It provides a higher rate of interest of upto 7.7%, which is higher than many other investment options. The interest is compounded annually and payable at maturity. The NSC tax exemption can be calculated using a National Savings Certificate calculator.
• Government Backing: NSC is backed by the Government of India, making it a safe and secure investment option. The principal amount invested, along with the accrued interest, is guaranteed by the government.
• Small Savings Scheme: NSC is designed to promote a savings culture among individuals. It encourages small savings by offering an affordable minimum investment amount and allowing investments in multiples of that amount. The minimum investment amount is Rs.1000 in multiples of 100.
• Tax Benefits: The amount invested in NSC qualifies for a tax deduction under Section 80C of the Indian Income Tax Act up to a specified limit. This helps individuals reduce their taxable income and potentially lower their tax liability.
• Compounding of Interest: The interest on NSC is compounded annually, which means it is reinvested into the certificate. This allows investors to earn interest on the interest, leading to accelerated growth of their investment over time.
• Fixed Maturity Period: NSC has a fixed maturity period of five years. At the end of the maturity period, the certificate holder receives the principal amount along with the accumulated interest.
• Accessibility: NSC can be easily purchased from designated post offices across India. This makes it a widely accessible investment option for individuals in both urban and rural areas.
• Nomination Facility: NSC provides a nomination facility, allowing investors to nominate a person who will receive the investment and interest in the event of the certificate holder's death. This helps in a smooth transfer of the investment and reduces complexities for the nominee.
• No Market Risk: NSC is not affected by market fluctuations or volatility since it offers a fixed interest rate. This makes it a suitable investment option for risk-averse individuals who prefer stability and guaranteed returns.
• Premature Encashment: While NSC has a fixed maturity period, it can be prematurely encashed under specific circumstances, such as the death of the certificate holder, court orders, or forfeiture by a pledgee.

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NSC Interest Rate - Historic and Current

Given below is the interest rate offered on NSC historically and in the current scenario -

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National Savings Certificate NSC Tax Benefits

The National Savings Certificate (NSC) offers tax benefits to investors under Section 80C of the Indian Income Tax Act. Here are NSC's key tax benefits:

• Tax Deduction: The amount invested in NSC is eligible for a tax deduction under Section 80C. The maximum deduction allowed under this section is currently up to Rs. 1.5 lakh in a financial year (subject to any changes in tax laws).
• Exempt at Maturity: While the interest earned on NSC is not tax-free, the interest income is deemed reinvested and qualifies for tax exemption under Section 80C. This means that the interest is not subject to tax each year but is taxed only at the time of maturity or withdrawal.
• Tax Deferred: The interest earned on NSC is not taxed annually, providing a tax deferral benefit. It allows investors to defer the tax liability on the interest until the maturity of the NSC, providing an opportunity for the investment to grow.
• Cumulative Tax Benefit: NSC tax benefits can be availed cumulatively with other eligible investments and expenses under Section 80C. This section covers a range of investments, such as life insurance premiums, provident fund contributions, tuition fees, and more. The combined deduction under Section 80C cannot exceed the specified limit.

The NSC interest rates are compounded annually but payable only after maturity.

For example, you are investing Rs. 1000 in the certificates, making you eligible for a deduction in taxes on the principal amount for the first year. In the second year, you can ask for tax deductions on the investments that year as well as the interest accrued on the principal amount in the first year. You can claim tax deductions separately because the interest is added to the investment and is annually compounded.

Calculate your Tax Exemption: National Savings Certificate Calculator

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Taxability of the Withdrawal and Interest on NSC

There is no specified maximum limit for NSC investments; however, only investments up to Rs. 1.5 lakh annually qualify for a tax rebate under Section 80C of the Income Tax Act of 1961. Additionally, the interest earned on the certificates is reinvested in the initial investment and is eligible for a tax break.

During the initial 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.

Typically, premature withdrawal of investments in the National Savings Certificate is not permitted before maturity. However, special circumstances allowing early withdrawal include:

• In the unfortunate event of the certificate holder's sudden demise.
• If the court issues an order permitting the withdrawal of the amount.
• Forfeiture of the holder's certificate.

If you have invested in NSC and the NSC has matured or is close to maturity, our tax advisory service can help you understand the tax implications of the interest income from your NSC investment.

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How to Invest in NSC?

How to Buy NSC Form Online?

From July’16 onwards, NSC can be bought in two modes: electronic mode (E-mode) or passbook mode. After the discontinuation of paper certificates, one requires a Savings Account (either with a bank or post office) with or without Net Banking enabled to purchase the certificate.

Stepwise breakdown of the process-

• Open a savings account in a National Bank/Post-Office

The government has allowed Public Sector Banks and three Private Banks (ICICI, HDFC & Axis) to accept deposits under the National Savings Certificate scheme, so the account must be in one of these banks.

• Get Net Banking Services Activated for your account.
• You would then be able to buy NSC in e-mode through the net banking portal.

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How to Buy NSC in Passbook Mode?

In case you don’t have the net banking services enabled, you can purchase the NSC in passbook mode. To get the passbook, follow the steps mentioned below:

• Open a savings account in a National Bank/Post Office.
• The government has allowed Public Sector Banks and the top three Private Banks (ICICI, HDFC & Axis) to accept deposits under the National Savings Certificate scheme, so you should have an account in one of these banks.
• Purchase the certificate through a bank. The bank will issue the NSC passbook, and like all other transactions, these transactions will also be recorded in the passbook.
• The passbook would then have to be signed and stamped by an authorized official.
• One can also transfer their already bought NSC from passbook or paper mode to electronic mode. For this, you will have to visit the bank/post office from where you purchased the original NSC, provide the details of the certificate, and collect the certificate in e-mode. In this case, the bank would collect and destroy the previously issued passbook.
• As this process does not require you to provide your KYC details, it is much more convenient and hassle-free.

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How to Get NSC From the Post Office?

Earlier, the process of buying NSCs was through the Indian Postal Service only. The process is as follows:

• Go to the nearest post-office branch, collect the NSC application form (Form-1), and fill in the basic information about yourself and the amount to be invested.
• Attach the required supporting documents: Recent photograph, Identity Proof, and Address Proof (Aadhaar Card, PAN Card, Voter ID/ Driving License/ Rental Agreements for Residential Proof).
• Deposit the amount to be invested (deposit can be made through cash, cheque, or Demand Draft and name a beneficiary).
• Collect and check the issued NSC for any mistakes and errors.

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Types of NSCs

Earlier, there were two types of NSCs: NSC Issue VIII and NSC Issue IX. The basic difference lies between their maturity rate and the interest rate offered. However, NSC Issue IX has been discontinued since December 2015.

NSC Issue VIII

This issue of the National Saving Certificate is similar to its other counterpart except for the fact that it has a shorter maturity duration of 5 years and offers a slightly lower interest rate as compared to NSC Issue IX. All individuals are eligible for this certificate except for Trusts and HUF. These certificates can be issued in denominations ranging from Rs. 100 to Rs. 10,000.

NSC Issue IX

NSC issue IX is an exact replica of issue VIII. These certificates had a longer maturity duration of 10 years and offered a slightly higher return owing to the fact that investments were held for a longer duration. These certificates have been discontinued from December’15 and are no longer issued. Like NSC Issue VIII, even these certificates were issued in denominations ranging from Rs. 100 to Rs. 10,000. There was no upper limit for investments like Issue VIII.

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Modes of NSC

Single Holder Certificate

As the name suggests, this type of certificate is designed to be issued to a single individual. The individual in whose name the certificate is issued has the choice of appointing the nominee, but all the major decisions shall be made by the individual and not the nominee. Such a certificate can also be issued in the name of a minor to an adult; in this case, the adult should be the legal guardian of the minor.

Joint A Type Certificate

This type of certificate is issued to two adults, and when the certificate matures, the amount is payable to both. The decision-making authority is shared by both individuals, and both holder's signatures would be required in case of cancellation, transfer, or change of nominee.

Joint B Type Certificate

A Joint B Type Certificate is also issued to two individuals who share decision-making authority. However, the maturity proceeds of this type of certificate are payable to only one individual among the two.

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What are the Forms Required for Investing in NSC?

Form 1: Application Form for Post Offices

This is the form required for purchasing an NSC from the post offices. It is a two-page document that needs to be filled with relevant information regarding the investment amount, details of the individual purchasing the NSC, and disclosure if the NSC is purchased on behalf of a minor. If a nominee is chosen, then you are supposed to fill in the necessary details in the designated space along with the signature of the individual and a witness. The receipt of Acknowledgement is at the bottom of the form; the next page is for official use and doesn’t concern us.

The form can be downloaded using this link: https://www.indiapost.gov.in/VAS/Pages/Form.aspx#SavingCertificates

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Form 2: Nomination Form

In case you have not appointed a nominee at the time of purchase, you can appoint one later via this form. All you need is the identification and residential information of the nominee, along with necessary proofs. In case you want to nominate a minor, their details will be furnished in the same form, along with the details of the guardian (if required). After providing all the information, submit the details of the certificate purchased for which the process of nomination is being done. Your signatures will be required to complete the process. If, due to certain circumstances, you are unable to do so, the officials will take your thumb impression along with the signature of a witness acquainted with the Post office.

National Saving Certificate Form 2 (NC-51)/ NSC Nomination Form

You can find the form on the link attached: https://www.indiapost.gov.in/VAS/Pages/Form.aspx

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Form 3: Change of Nomination Form

This form is used in case you want to change the nominee at any later stage. The form requires information about the new nominee along with the detailed information of the National Saving Certificate purchased. This form would require a witness from the post office and has to be submitted at the same post office from which the initial NSC was purchased.

National Saving Certificate Form 3 (SB-13A)/ NSC Nomination Form

You can find the form on this link: https://www.indiapost.gov.in/VAS/Pages/Form.aspx

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How to Nominate Someone in NSC and is there any Benefit of Nomination?

Yes, a partial amount can be withdrawn from the account after the girl child (benefactor) turns 18 for her marriage or higher studies. However, the partial amount being withdrawn cannot be more than 50% of the total amount.

Nominating a person is not mandatory, but it is recommended as it benefits in case of the demise of the person holding the NSC. The proceeds from the NSC would go to the person nominated, or in the case of a minor, the adult responsible for the minor would be paid on their behalf. A Few pointers to keep in mind while nominating are:

• Nomination can be done through either Form 1, 2, or 3.
• Nomination and change of nomination should be done through the same bank/post office from where the NSC was initially bought.
• Nominee details would have to be provided to the bank/post office.
• If the holder of the NSC passes away without nominating anyone, the proceeds will go to their legal heir.
• In case the certificate has been purchased on behalf of a minor, nominating is not an option.
• In case the NSC has been purchased on different dates or from different post offices, then separate nomination forms would be required (for paper mode).

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Terminating/Withdrawing NSC Before Maturity Period

NSC investments have a lock-in period of 5 years and are not subject to early withdrawals except in some cases:

• The person holding the certificate passes away or forfeits them.
• The court dictates that the NSC be paid early.
• In any case, the amount received would depend upon the length of the holding period; that is, if the NSC is prematurely terminated within a year of purchase, only the initial invested amount would be returned.
• If the NSC is prematurely terminated between years 1 to 3, then the initial investment plus simple interest compounded annually would be paid.

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Shifting or Transferring of NSC

How can I shift NSC from one post office to another?

In case you have relocated from where you purchased the NSC and wish to shift the NSC to a new bank/post office, you will have to fill out Form NC-32. The form would require information about the holder of the certificate, details of the certificate, and nominee details. This form can be submitted at either the old or the new bank/post office.

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How can I transfer ownership of NSC to another person?

In case you want to transfer the ownership to another person, written consent from the postmaster of the issuing post office would be required. Even after this, transferring ownership is possible only under specific conditions, namely

• From the Original holder to the court of law or another person directed by the court.
• Original holder to the nominee in case of death of the original holder.
• In the case of joint holding, ownership can be transferred from one holder to another.

For transferring the ownership,

Form NC-34 Annexure 2

needs to be filled, and some important points you need to be cautious about

• Firstly, ownership can only be transferred after a year from the sale of the certificate. If you transfer the ownership before one year, it will get legal sanction only after a year.
• Signatures of both the holders are required in case of joint holding
• In case the NSC is being held on behalf of a minor, then you would have to prove that transferring the ownership is in the best interest of the child and that the child is alive and well.

The process of transferring ownership is as follows:

• The owner, along with the new owner, will have to apply for transferring ownership.
• Bank/Post Office will investigate the case, and if no issues arise, they will transfer the ownership to the new owner.
• After the transfer of ownership, the previous owner will also be barred from accessing NSC's e-mode.
• If the NSC was in passbook mode, the bank/post office shall collect the passbook from the previous owner, cancel out all the details related to him, and fill in the details of the new owner.
• The above steps will be undertaken by only authorized officials.

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How to Apply for a Duplicate NSC in Case of Loss or Damage?

From July’16, the NSC has been issued in passbook and electronic form, but for individuals who have already invested in this scheme, losing their certificates is a big concern. In the end, NSC is paper certificates and can be easily damaged, destroyed, and even stolen, and you have to hold them for a duration of 5 years. Therein lies the risk of losing your certificate even before getting an option of encashing it.

However, there is a procedure for issuing duplicates in case originals become unfit to cash

• Fill out Form NC-29 and submit it to the issuing post office or any nearby post office.
• The form would require your details along with the details of the original certificate/s issued.
• The reason for applying for duplicate NSC must be mentioned in the form.
• The original certificate would be required as proof of destruction and defacing. In case the original is not available, an indemnity bond will be required for certificates with a value higher than Rs. 500 that will either have a guarantee from the bank or are backed by securities.
• If the duplicate certificate is issued, then it is only redeemable at the issuing post office

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What are the Documents Required for Investing in NSC?

To apply for an NSC (National Savings Certificate), you need to submit the following documents:

• NSC application form.
• Original identification proof such as:
  • Passport
  • Permanent Account Number (PAN Card)
  • Voter ID
  • Driving license
  • Senior Citizen ID, or Government ID for verification.
• Photograph.
• Address proof such as an electricity bill, Passport, telephone bill, bank statement, along with a cheque.

How is NSC Different from FD and PPF?

NSC is a secure government-backed savings product with a 7.7% annual interest rate. Individuals can invest up to Rs. 1.5 lakh per year, enjoying tax benefits under section 80C. Only individuals, not HUFs or trusts, can invest. The 5-year NSC is available at post offices, and premature withdrawal is not allowed. While interest earned yearly is tax-deductible, the final year's interest at maturity is not eligible for tax benefits.

Key observations include:

• All fixed-return products mentioned are eligible for a tax deduction under section 80C, up to Rs. 1.5 lakhs annually.
• All three options are inherently safe, secure, and low-risk products.
• Tax-saver FDs yield comparatively lower returns than PPF and NSC.
• The maturity period for tax saver FDs and NSC is five years, while PPF has a longer 15-year lock-in period, making it a long-term investment.
• PPF and NSC offer overdraft or loan facilities for financial emergencies, a feature lacking in tax-saver FDs.
• Interest accrued on a tax-saver FD is considered part of taxable income, whereas returns from PPF and NSC are tax-exempt.

Now that you know everything you must know about NSC, its eligibility, and benefits, you must already be thinking about investing in it. And, in case, you still need assistance with tax planning or want to save more taxes, you can reach out to our tax experts who navigate through 300+ provisions to find the one suited to your needs and file your ITR accurately. Hire an Online CA Now!

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