NSC (National Saving Certificate)- Tax Benefit, Interest Rates & more…

Save Tax - Invest in NSC

Save Tax – Invest in NSC

NSC (National Saving Certificate) is popular tax saving investment under section 80C. It has maturity of 5 years and is guaranteed by Government of India. This post lists the significant features of NSC, tax benefit, taxation, loan available, etc

Interest Rate on NSC:

As of today (for January to March 2017 quarter) NSC gets 8% interest compounded annually. The interest rates are set every quarter by Government of India and is benchmarked to Government Bond yields. However once purchased the interest rate remain constant for that NSC.

The maturity period is 5 years from the date of investment.

10 Year NSC has been discontinued since December 20, 2015.

Tax Benefit on NSC:

You can claim tax deduction up to Rs 1.5 lakh for investment in NSC under Section 80C. Additionally the interest accrued every year on NSC is also considered for tax exemption u/s 80C.

Download: Latest Tax Planning Guide eBook

Here is an example.

Date Interest Accrued Comments
1-Mar-17 1,50,000

(Investment Done)

Purchased to Save Tax
1-Mar-18 12,000 Interest Accrued would be eligible for tax deduction u/s 80C
1-Mar-19 12,960 Interest Accrued would be eligible for tax deduction u/s 80C
1-Mar-20 13,997 Interest Accrued would be eligible for tax deduction u/s 80C
1-Mar-21 15,117 Interest Accrued would be eligible for tax deduction u/s 80C
1-Mar-22 2,20,395

(Maturity Amount)

16,326 Redeem the Maturity Amount. Final Year interest is NOT eligible for tax benefit

The final year interest is not considered as reinvestment for tax benefit.

NSC in Tax Returns:

To take the tax benefit on accrued interest you should declare the same in your income tax return (ITR) form every year under “Income from Other Sources”.

Download: Excel based Income Tax Calculator

TDS & Tax on NSC:

There is NO TDS on NSC.

The interest earned is taxed according to marginal income tax rates applicable to tax payer.

Investment Limit for NSC:

The minimum investment should be Rs 100.

There is NO maximum limit for investment in NSC. However the maximum tax exemption is Rs 1.5 Lakh u/s 80C.

NSC can be purchased in multiples of Rs 100.

Also Read: PPF – A Must Have Investment

How to buy NSC?

NSC can be bought across counters of most post offices.

You just need to fill up a one page form and attach relevant KYC documents (self-attested ID and address proof).

The payment can be made in any of the following modes:

  1. Cash
  2. Cheque or Demand Draft
  3. Withdrawal form from Post Office Savings Account
  4. In exchange of Old matured NSC

After due diligence and verification of KYC documents NSC is issued to the investor. The practice of giving NSC certificates have been discontinued since July 2016 and now investors are issued NSC Passbook (similar to bank account passbook) with the investment details.

You can also buy NSC online if you have net banking access of Post Office Savings Account!

Also Read: Best Tax Saving Investments

Who can invest in NSC?

Only resident individuals can invest in NSC. You can invest jointly with another adult or purchase it on behalf of a minor.

HUFs and Trusts are NOT eligible to invest in NSC.

Also NRIs cannot invest in NSC. However if NRI can hold NSC if they had purchased it before becoming NRI.

Nomination in NSC:

Nomination facility is available for investors. You can nominate at the time of purchasing the NSC or any time before redemption by filling up this form. If required you can also request for change of nominee.

Also Read: All about Senior Citizens’ Savings Scheme

Transfer of NSC:

The NSC can be transferred from one person by filling up this form. The transfer can be done only once.

Loan against NSC:

NSC can be kept as collateral security to get the loan from banks & financial institutions. Fill up this form. Below is screenshot from Bank of Baroda for Loan against NSC/KVP. You can check terms and conditions here.

Loan against NSC - National Saving Certificate

Loan against NSC – National Saving Certificate

Also Read: Does Your Life Insurance Offers Tax Benefit?

Transfer NSC between Post Offices:

NSC purchased from a post office has to be redeemed in the same post office. In case you are moving places its good idea to transfer the NSC to a post office near to your new area. You can do so by filling out the prescribed forms. The good thing is the transfer application form can be submitted in either of the post offices.

Interest on NSC after maturity:

If you do not redeem your NSC on maturity the amount would earn interest of just 4%. This is applicable for two years from maturity. After 2 years there would be no further interest paid.

Also Read: 25 Tax Free Incomes & Investments in India

Premature Encashment of NSC:

NSC cannot be enchased mid-way before maturity under normal circumstances. However there are certain exceptions:

  • On death of holder
  • On order from court

In case the redemption happens within one year of investment, NO interest is paid.

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