The National Savings Certificate (NSC) is a fixed income post-office savings scheme which is offered by the central government. In order to get started, one has to visit the post office to further activate this scheme.
First things first, the India Post is responsible for the popularity of this particular instrument. The key idea behind investing in the NSC is to avail tax deduction on deposits and guaranteed returns on investment.
The minimum amount to invest in this scheme is Rs.100 and there is no upper limit and one can invest any amount he wishes to.
It is therefore also suitable for any investor as it allows him to make small investments and is also eligible for a tax deduction.
This scheme ensures and provides safety of capital. It also extends guaranteed interest payments over the tenure of the scheme.
NSC has an additional advantage when compared to schemes like fixed deposits which are the lower risks and higher interest rates involved.
Procedure to buy:
In order to get started, all you need to do is fill the NSC application form which is available at the nearest post office.
At the time of buying, you need to carry along with an original identity proof for verification.
Further, you can buy the certificate with cash, cheque or demand draft which is drawn in the favour of the postmaster of the post office.
It must also be noted that in the case of loss or damage of NSC certificates, duplicate certificates can be attained on furnishing an indemnity bond.
Who and why should one buy it?
- Anyone who wants to make small investments should buy the NSC.
- In case of obtaining loans, you can pledge the NSC. Also, the assured returns that you receive on the NSC can be used to create an income ladder for your preferred duration.
- The NSCs can be purchased every month or quarterly for appropriate denominations, which on maturing will act as a steady income stream.
- The amount that is invested in the NSC is eligible for tax deduction under Section 80C up to the Rs 1.5 lakh limit which stipulated in a financial year. This also includes the accrued interest on the existing certificates. Also, considering the face that the interest earned on the NSC is automatically reinvested, it can be claimed as a deduction under Section 80C.
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What are taxes and interest rates involved?
The union government alters and adapts the interest rate on NSC periodically and the current interest for NSC is 6.8%. The same is compounded annually. This rate may vary from that of the bank rates and at times would be higher.
The interest which is generated annually by investing in the NSC is considered as a new investment for tax benefits at large.
It must also be noted that no Tax Deducted at Source (TDS)is deducted for interest earned on NSC but should also be kept it mind that according to the marginal income tax rates, the tax should be paid for the interest that has been earned.
Process of withdrawal
Early withdrawals in the scheme is subject to penalty and while one can withdraw from NSC before maturity, that is only under specific mandates which include the death of the certificate holder, on having an order from a court of law. And also in the case of the forfeiture of certificate by the gazetted officer.
Also, there is requirement of certain documents that must be submitted by the certificate holder when he wishes to withdraw the funds. In this case, the list of documents that must be submitted are- the original National Savings Certificate, the NSC encashment form, any proof of identity, the attestation of the guardian is compulsory in case the NSC was purchased on behalf of a minor, In case the certificate holder passes away, the nominee can encash the invested amount by submitting the Annexure 1 (registered at a post office) and the Annexure 2 (legal evidence) forms.
Are there any risks involved in the case of NSC?
NSC is typically considered to be a small savings scheme which is backed by the government largely and hence does not have a lot of risk involved.
The risk in a tax-saving fixed deposit is also not high as it comes under well-reputed banks. One cannot however deny that there is not risk involved and hence should note that fixed deposits up to Rs. 5 lakhs are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).