When it comes to investing, there are many options available. The choice is up to you based on your financial goals. Popular post office savings products include National Savings Certificates, or NSCs. Due to its low risk, it is an attractive investment. In this article, we have discussed:
National Savings Certificates: What are they?
You can open a National Savings Certificate (NSC) at any post office branch. The scheme is an initiative of the Government of India. Subscribers – mostly small to mid-income investors – can invest while saving on income taxes through this savings bond.
Like Public Provident Funds and Post Office FDs, this scheme is a low-risk fixed-income product. Post offices sell it in your name, for minors, and in joint accounts with another adult. NSCs have a five-year maturity period. NSCs can be purchased at any price, but you can only earn a tax break under Section 80C of the Income Tax Act if your investment is up to Rs.1.5 lakh. There is currently a 6.8% fixed interest rate on the certificates. The government regularly revises the interest rate.
Is NSC a good investment?
It is possible to invest in NSC and earn a steady interest while saving on taxes. Interest is guaranteed and capital is protected with NSC. Unlike tax-saving mutual funds and the National Pension System, however, they cannot beat inflation. By making NSC available in post office branches all over the country, the government has made it easily accessible to prospective investors.
National Savings Certificates are a savings scheme promoted by the government. Thus, Hindu Undivided Families (HUFs) and trusts cannot invest in it. Furthermore, NSC certificates cannot be purchased by non-resident Indians (NRIs). It is only open to Indian citizens who reside in India.
An overview of NSC’s features and benefits
- The scheme currently generates a fixed income return of 6.8% for investors. The returns offered by nsc portal have generally been higher than those offered by FDs.
- In the original scheme, there were two types of certificates – NSC VIII Issue and NSC IX Issue. In December 2015, the government discontinued the NSC IX Issue. Currently, only the NSC VIII Issue is open for subscription.
- Under Section 80C of the Income Tax Act, 1961, you can claim up to Rs 1.5 lakh as a government-backed tax-saving scheme.
- Invest as little as Rs 1,000 (or multiples of Rs 100) as your initial investment, and increase it when you can.
- The government periodically revises the interest rate, which is currently 6.8% p.a. Interest is compounded annually but paid at maturity.
- There is a five-year maturity period.
- By submitting the required documents and undergoing KYC verification, you can purchase this scheme from any post office. The certificate can also be transferred from one post office branch to another.
- Collateral for secured loans: Banks and NBFCs accept NSC as collateral. In order to do this, the concerned postmaster should transfer the certificate to the bank with a transfer stamp.
- By default, interest earned on investments is compounded and reinvested, though the returns don’t beat inflation.
- Upon the investor’s death, the investor can nominate a family member (even a minor) to inherit the estate.
- The entire maturity value will be given to you upon maturity. Subscribers should pay the applicable tax on NSC payouts since there is no TDS.
- The scheme cannot be exited prematurely. In exceptional cases, such as when an investor dies or a court order is issued, they accept it.
Investments in NSCs have tax benefits
Under Section 80C, subscribers can earn a tax break by investing up to Rs 1.5 lakh in National Savings Certificates. Furthermore, the interest earned on the certificates is also taxable.
If you purchase certificates worth Rs 1,000, for example, you are eligible for a tax rebate on that amount in the first year. Tax deductions are allowed for both NSC investments and interest earned in the second year. Because interest is compounded annually, it is added to the original investment.
What is the electronic method of investing in NSC?
The NSC can be invested electronically (e-mode) if you have a bank or post office savings account. Additionally, you will need an internet banking facility for your savings bank account to invest in the NSC. Apply for internet banking if you haven’t maintained your savings account. It is easy to hold a NSC electronically, similar to an e-FD or an e-recurring deposit.
What is the passbook investment method for NSC?
If you are not comfortable with the electronic method, you can invest in NSC through the passbook mode. Passbooks or e-modes are used to record this information. Additionally, your passbook prints all your transactions, just like a bank passbook. If you prefer, you can record your transactions manually in the passbook.
The authorised officials will sign your passbook physically. Your passbook will be collected and destroyed if you choose the electronic mode instead of the passbook mode.
Passbook mode involves the bank branch or the post office receiving your passbook. A passbook replaces a pre-printed NSC if you lose your physical NSC. The old national savings certificate number would be noted on the issued passbook. You can transfer the national savings certificate from one bank branch or post office to another as per rules and guidelines. The passbook mode is available for pledging across India from 01 July 2016. However, NSC, once pledged, cannot be transferred.
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