Tax Benefits of Investing in National Savings Certificate:-A government-supported plan suitable for people who don’t want to take big risks with their money is called the National Savings Certificate (NSC). It guarantees you’ll get back a certain amount of money and it also helps you save on taxes. You can buy NSC certificates either electronically or through a passbook.
National Savings Certificate (NSC)
The National Savings Certificate (NSC) is a financial product introduced by the Indian government. Its main goal is to encourage individuals, especially those with modest incomes, to save money while also providing tax benefits. You can purchase NSCs at nearby post offices either in your name, jointly, or on behalf of a minor. NSCs typically mature after five years.
| Tenure | 5 years |
| Rate of Interest | 7.7% p.a. |
| Minimum Amount | Rs.1,000 |
| Tax Benefits | Under Section 80C of the Income Tax Act |
There’s no upper limit on the amount of NSCs you can buy. This scheme offers fixed returns and is considered low-risk since it’s backed by the government.
National Savings Certificate (NSC) Features
Key Features of the NSC Scheme:
- Minimum Investment: You can start with as little as Rs. 100 and buy certificates in denominations of Rs. 10,000, Rs. 5,000, Rs. 1,000, Rs. 500, and Rs. 100. You can begin with small investments and increase them later.
- Maturity Period: You can choose between two maturity periods: five years or ten years.
- Interest Rate: The current interest rate is 7.7%, compounded annually. However, the interest is paid out only when the certificate matures.
- Nominations: You can nominate family members, including minors. If something happens to you during the scheme, the nominee inherits it.
- Types of NSC: Originally, there were two types: NSC IX Issue and NSC VIII Issue. Now, only the NSC VIII issue is available since the NSC IX issue was stopped in 2015.
- Loans Against NSC: You can use NSC as security for loans from banks, but the postmaster must approve the transfer to the bank.
- Purchase: You can buy NSC at post offices after submitting the necessary documents.
- Transfer of Certificate: You can transfer NSC from one post office to another or from one person to another. However, the certificate itself remains the same; only the name changes.
Interest Rate for April to June 2024 Quarter
From April to June 2024, the National Savings Certificate will offer an interest rate of 7.7%. This rate might change every three months, as it gets reviewed by the Ministry of Finance. So, the interest rate you receive could be different in the next quarter.
What are the tax benefits of Investing In National Savings Certificates
The Tax benefits of Investing in National Savings Certificates are mentioned below:
Tax Deduction on Investments
If you’re interested in investing money and also want to save on taxes, investing in options like the National Savings Certificate (NSC) could be beneficial. Under Section 80C of the Income Tax Act, you can invest up to Rs 1.50 lakhs and not pay taxes on that amount.
Avoiding Taxes on NSC Interest
When you make money from National Savings Certificates (NSC), you normally have to pay taxes on it. But for the initial four years, the interest you earn is reinvested, so you won’t be taxed on it. This reinvestment can also be considered as a deduction when you’re filing your taxes under Section 80C of the Income Tax Act, 1961. Since NSC takes five years to fully mature, you can reinvest the interest for four years without facing taxes. However, any interest you make in the fifth year might be subject to taxation.
NSC Investment Eligibility and Process
TDS (Tax Deducted at Source) doesn’t apply to the interest earned from National Savings Certificates (NSC), unlike fixed deposits.
Who Can Invest in NSC?
If you’re an Indian resident, you’re eligible to invest in NSC. You can invest individually or jointly with up to two adults. It’s also possible to invest in NSC in the name of a minor. To invest, you can use the Department of Post internet banking for online transactions. Alternatively, you can visit your nearby post office branch and make the investment using various payment methods such as cash, cheque, or bank demand draft.
NSC Lock-in Period
When you invest in NSC, your money is locked in for five years. You can’t withdraw it early, except in specific situations like the depositor’s death, if a Gazette officer orders forfeiture, or when a court instructs it to be liquidated.
Premature Closure of the NSC
You can’t close your NSC account before five years, except in these cases:
- If the account holder dies in a single account, or any or all account holders in a joint account.
- If a Gazetted Officer, who holds your NSC as security for a loan, forfeits it according to the rules,.
- If a court orders the closure.
How to Open NSC Online through Post Office Internet Banking:
- Sign in to your DOP internet banking account.
- Go to ‘General Services’ > ‘Service Requests’ > ‘New Requests’.
- Choose ‘NSC Account: Open an NSC Account and KVP Account’ for opening an NSC account.
- Specify the amount you want to invest (minimum Rs 1000, in multiples of < 100).
- Pick the linked PO Savings Account for the deduction.
- Read and accept the terms and conditions by clicking ‘Click Here’.
- Submit your request online.
- Enter your transaction password and submit.
Log in again to check your newly opened NSC account details under ‘Accounts’.
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What is NSC?
NSC stands for National Savings Certificate. It is a savings scheme offered by the Indian government.
Who can invest in NSC?
Resident Indians, including minors, can invest in NSC.
Where can I buy NSC?
You can purchase NSC at any post office in India.
What is the minimum investment amount for NSC?
The minimum amount required to purchase NSC is Rs. 100.
What are the maturity periods available for NSC?
NSC is available with maturity periods of five years and ten years.
How is the interest calculated on NSC?
The interest on NSC is compounded annually. However, it is payable only at the time of maturity.
Can I nominate someone for my NSC?
Yes, you can nominate family members, including minors, for your NSC investment.
Can I take a loan against NSC?
Yes, NSC can be used as collateral for obtaining loans from banks, subject to approval by the postmaster.
Is it possible to transfer NSC from one person to another?
Yes, NSC can be transferred from one person to another, with the name on the certificate being updated accordingly.
Are there any tax benefits associated with NSC?
Yes, investments made in NSC are eligible for tax deductions under Section 80C of the Income Tax Act.
Can NSC be encashed before maturity?
NSC cannot be encashed prematurely, except in certain exceptional circumstances like the death of the investor or court order.
Is the interest earned on NSC taxable?
Yes, the interest earned on NSC is taxable under the head “Income from Other Sources”, but it is payable only at the time of maturity.