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National Savings Certificate: Key Information, Benefits, and NSC Interest Rates

                                                          JUL 27, 2022  6 MINS READ

Last Updated on Jul 27, 2022 Manish Thole

National Savings Certificate (NSC) is a tax-saving investment scheme offered by the Government of India. It is considered a fixed income, secure, low-risk scheme and is available at all Post Offices in India. The scheme’s primary objective is to build savings for average and low-income earning individuals while providing them tax benefits. In this article, let’s explore NSC, its features, how to calculate it, and NSC interest rates.

Table of Contents

• Key information        
• NSC interest rates           
• Benefits of NSC              
• Eligibility criteria and application procedure         
• Documents required          
• Interest applicability on premature withdrawal of NSC              
• How to calculate the NSC interest rate?              
• Tax benefits of NSC investment                
• To sum up
• FAQ
• 1. Who Can Invest in NSC?
• 2. Is the NSC interest rate fixed for 5 yrs?
• 3. Is the NSC interest higher than the PPF interest rate?

NSC interest rates           

The Government of India decides the NSC interest rates quarterly. Hence, they are subject to periodic changes. The interest is compounded annually based on the interest rate. The NSC interest rate for Q2 FY 2022-2023 is 6.8%. Since April 2022, the interest rate has been 6.8%. You can check the historical NSC interest rates here.

Benefits of NSC              

There are several benefits of investing in the NSC scheme, such as,

• One of the primary benefits of the NSC scheme is that it provides tax benefits that individuals can easily avail themselves of.
• The scheme guarantees a return. Therefore, many individuals prefer it as their regular income is secured once they retire.
• The interest earned on the accrued amount is tax-free except for the amount earned in the final year. Further, the interest is compounded yearly and reinvested towards the scheme. Hence, your invested amount increases without repurchasing the certificate.
• You can easily obtain a duplicate certificate in case you lose the original one.
• You can invest in this scheme even after the maturity period.
• It is allowed to transfer the certificate from one individual to another. However, you can only do it once during the lock-in period.
• The certificate is accepted as collateral for secured loans in banks and Non-Banking Financial Companies (NBFCs).

Eligibility criteria and application procedure         

Eligibility criteria require an individual to be an Indian resident. The scheme does not chalk outage requirements to be eligible for it. Hence, individuals from all age groups can avail benefits of the NSC scheme.

The application procedure for NSC is quite simple. If you are interested in the scheme, you can apply for it at your nearest post office along with the documents mentioned below. You can pay either by cash or check.

Documents required          

The documents listed here are required to buy an NSC. Without them, you will not be able to avail the benefits of the scheme.

• NSC application forms are filled out properly.
• Any address proof document like telephone bill, Aadhaar card, driving license, etc.
• Any government-approved identification proof such as Aadhaar Card, PAN card, etc.
• Recent passport size photograph
• Cash or cheque of the amount you wish to invest.

Make sure you have all the required documents to enjoy hassle-free admission into the scheme.

Interest applicability on premature withdrawal of NSC              

A premature withdrawal of NSC is allowed only under the following special circumstances.

• The sudden demise of the certificate holder.
• If the certificate holder gets forfeited.
• The court approves the order to withdraw the amount.

Apart from these situations, you cannot withdraw your investment from NSC prematurely. The interest applicability on premature withdrawal of NSC is mentioned in the table below.

Time of withdrawal	Interest applicability
Withdrawal before the completion of 1 yr	No interest
Withdrawal after the completion of 1 yr	Interest offered at the current rate at that time

If you want to withdraw your investment during the premature period, you shall require the following documents:

• Original NSC document.
• NSC encashment form properly filled in.
• Identity proof, similar to the application requirement.
• For minors, the attestation of a guardian is mandatory.
• Nominees who wish to avail of investment must submit Annexure 1 and Annexure 2 forms.

How to calculate the NSC interest rate              

Let’s understand how to calculate the NSC interest rate with the help of an example. 

Assumptions –
Investment: Rs. 10,000
Date of purchase: 20 March 2021
Interest rate: 6.8% per annum
Lock-in period: 5 yr

Year	Investment Amount (Rs.)	Interest for the year at 6.8%	Total interest generated (Rs.)	Accumulated amount (Rs.)
1	10,000	680	680	10,680
2	10,680	726	1,406	11,406
3	11,406	776	2,182	12,182
4	12,182	828	3,010	13,010
5	13,010	885	3,895	13,895

Hence, after 5 yrs with an initial investment of Rs. 10,000, you get Rs. 13,895. The total interest generated after maturity is Rs. 3,895. 

You can also use the calculator available on the website of the Income Tax Department of India. You must enter the below-mentioned details to calculate the interest:

• The NSC type: There are two types available. IX issue is for investments made before 1 April 2016. VIII Issue is for the period after that.
• The year the NSC was purchased.
• The invested amount.

Once you enter these details, the calculator will reveal the total interest amount you have accumulated so far.

Tax benefits of NSC investment                

The NSC scheme’s top advantage is tax benefits. You can earn a tax rebate under Section 80C on investments up to Rs. 1.5 lakh. It is important to acknowledge that there is no upper limit on the amount invested in the scheme. However, no tax relief exists for the amount exceeding the limit of Rs. 1.5 lakh. 

The interest accumulated on the certificate is added back to the initial investment and qualifies for a tax reduction. For instance, if you purchase a certificate of Rs. 1,000, you are eligible for a tax rebate on the initial investment for the first year. Now, for the second year, you can claim a tax deduction on the NSC investment(s) as well as on the interest accumulated on the initial investment in the first year. Since interest is added to the invested amount and compounded annually, you can claim tax deductions separately.

To sum up

National Savings Certificate is a common investment instrument backed by the Government of India. It provides tax benefits to individuals. The current NSC interest rate is 6.8% per annum with a maturity period of 5 yrs. If an individual wants to make a premature withdrawal before completing 1 yr, they won’t avail of the interest benefits. Conversely, if the withdrawal is made after a year, both the entire contribution and interest are paid.

FAQ

1. Who Can Invest in NSC?

The Government of India has promoted NSC for individual Indian citizens. There are no age eligibility criteria to avail the benefits of NSC. However, Hindu Undivided Families (HUFs), trusts, private and public limited companies, and Non-Resident Indians (NRIs) cannot invest in NSC.

2. Is the NSC interest rate fixed for 5 yrs?

You can open any number of accounts for NSC. However, the interest rate remains fixed throughout your tenure of 5 yrs. The government changes the NSC interest rate from time to time. However, the rate of interest at which you apply for the certificate is the rate fixed for you till maturity.

3. Is the NSC interest higher than the PPF interest rate?

The current NSC interest rate is 6.8%, whereas the current interest rate for PPF is 7.1%. Hence, as per the current scenario, PPF has a higher interest rate than NSC.