National Savings Certificate - Interest Rates

National Savings Certificate

The National Savings Certificate, better known by its abbreviation NSC, is a popular small saving instrument. NSC combines tax-saving benefits with guaranteed returns and thus makes for a good investment option. The scheme is further backed up by the Indian government and is available at post offices across the nation. Perhaps it would not be an overstatement to say that the reach of the India Post is, in fact, responsible for its popularity. 

Capital and Inflation Protection 

The capital invested in NSC is protected and is backed by the government. This is however not protected against inflation. What this means is that when inflation goes above the current guaranteed interest rate, the deposit will not be able to earn any real returns. On the other hand, when the inflation rate is below the interest rate, NSC will fetch you a positive rate of return. 

Guaranteed interest rates

Interest rates on NSC are all guaranteed. Presently, this rate stands at 6.8 percent on the five-year option, which is annually compounded. The ten-year option, however, has been discontinued. The interest rate is also revised every quarter, by the prevailing government bond rates, ever since the fiscal year 2016-17. 

However, once you have invested, the applicable rate is what will apply throughout the tenure of the investment. 

Liquidity and exit options

You can easily borrow money against your NSC savings, making the instrument liquid. 

Your money will be locked in for the tenure of your investment. However, premature encashment is possible in the event of the death of the certificate holder. Additionally, the certificate is transferable. 

Tax implications

Under Section 80C, the sum invested in NSC is eligible for tax deductions, up to INR 1.5 lakhs in a financial year. This includes the accrued interest on existing certificates. Also, since the interest that is earned is automatically reinvested, it can be claimed as a deduction under the same section. However, if the accrued interest is not added to the INR 1.5 lakh, then the entire income is taxable on maturity. 

Where and how to buy an NSC

The NSC can be purchased from any general or head post office. You just need to fill a simple form that will be given to you. The certificate can be bought with cash, cheque, or a DD in favor of the postmaster from where you are making the purchase. Make sure that you carry an original photo identity proof for verification at the time of buying the NSC. 

Important points to keep in mind

- NSC is encashable at any post office of the country. You, however, need transfer rights for the same. NSC is also transferable across post offices. 

- NSC can be pledged to obtain loans. 

- In case your certificate is lost or damaged, you can get a duplicate one by furnishing an indemnity bond. 

- Interest income is taxable if it is not claimed under Section 80C, but no tax is deducted at the source. 

Some tips and strategies

The returns that you get on the NSC can be used to create an income ladder. Every month or quarter, these certificates can be purchased for the apt denomination, and upon maturity, these will act as a steady income stream. 

A lot of people create an income stream that will last them easily for a decade by timing the maturity and reinvestment of the NSC, which then creates an assured income upon retirement. 

NSC Features at a glance

Eligibility: Resident Indian 

 Entry age: None

 Minimum Investment: INR 1,000

 Interest: Interest rates are revised after every quarter; presently 6.8 percent compounded annually for April-June, 2020.

 Tenure: Five years

 Nomination Facility: Available

Account-holding categories: Individual/ Joint/ Minor through the guardian.