National Saving Certificate (NSC) is one of the most popular post office tax saving scheme. It gives you a fixed amount after 5 years. This scheme gives you tax benefit under section 80C of the income tax act. In this post, I will tell you about the features, interest rate and calculation of National Saving Certificate (NSC) scheme. I would also give you an NSC calculator. The calculator tells you the maturity value along with the accrued interest.
National Saving Certificate (NSC) is the most popular saving scheme among all the government saving schemes. It is very simple to subscribe and anyone can take it from the post office. Since many years, people put their saving into this scheme. It has been very reliable saving scheme and it has been the preferred tax saving option.
Interest Rate on National Saving Certificate (NSC)
The government of India decides the interest rate of NSC. The interest rate of NSC is linked to the yield of 10-year government bond. It is reviewed every quarter. However, the government is planning to review it more frequently.
The interest rate of NSC does not change during the 5-year tenure of the NSC. At the time of NSC purchase, you know the maturity value of NSC. It does not change because of interest rate fluctuation in between.
The Interest rate of NSC is compounded half yearly. But it gets deposited into the account every year.
The interest rate on 5-year NSC is 7.8% per year. 10-year NSC is discontinued now.
Tax Saving Through NSC
The National Saving Certificate (NSC) gives tax deduction under section 80C. It means the investment into NSC would be deducted from the taxable income. Total 1.5 lakh can be deducted for tax saving under section 80C.
The interest earning from the NSC is taxable. Since the interest is accrued every year, the notional interest is added to the total taxable income of every year.
The interest of NSC is not paid every year, rather it is reinvested at the same interest rate. This reinvestment of interest is further eligible for tax deduction under section 80C.
TDS is not applicable on the National Saving Certificate (NSC). So, you don’t need to worry about it.
The taxpayer should show the interest earned as an income while e-Filing income tax return. Further, this income can be claimed for tax deduction under section 80C.
Minimum and Maximum Investment in NSC
You have to invest minimum Rs 100 in the National Saving Certificate (NSC) scheme. There is no such limit for maximum investment. However, the tax deduction can be claimed of maximum Rs 1.5 lakh.
The National Savings Certificate is issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, Rs. 10,000. You can buy any number of NSC certificate of any denominations. There is no bar.
Type of NSC Certificates
There are 3 types of National Savings Certificate
- Single holder Type Certificate: It is issued to the holder himself or on behalf of the minor.
- Joint A type Certificate: It is issued jointly to 2 adults. It is paid to both of the joint holders.
- Joint B type Certificate: This type of NSC is issued jointly to 2 adults payable to either of the holders.
How to Buy NSC from Post Office
To buy the NSC you have to fill a form. The postal department has specified this form. You can also download the NSC Application form online. You can get NSC application form from the post office itself.
Fill the NSC application form and submit the investment amount. You can give investment amount through the following methods.
- Cheque, Pay order or Demand Draft drawn in favor of the Postmaster
- By submitting a request for with drawl of funds from the Post Office Savings Bank Account
- By surrendering an old matured certificate. If you choose this method you have to write in the back of surrendered certificate that you have “Received payment through issue of fresh certificate, vide application attached”
You have to give the self-attested copies of identity and address proof.
After the verification, the postmaster would give you the National Saving Certificates (NSC) of the desired amount. If the postmaster does not have required certificates, he/she can give a provisional certificate. You would get the printed NSC after few days.
The certificates are pre-printed in the different denominations. Keep these certificates till the maturity, the photocopy of the certificates can be used as the proof of investment for tax benefit.
Nomination of National Saving Certificate (NSC)
You can also nominate anyone to your NSC certificate. This nomination can be done at the time of NSC purchase or any time before the redemption.
To nominate someone, you have to fill the prescribed nomination form. You can also change nomination any time before the redemption. The nominee would get the maturity value in case the certificate holder dies. The nominee is required to present the death certificate along with the redemption request.
Transfer Of National Saving Certificate (NSC)
You can also transfer the National Saving Certificate (NSC)s to any person. The transfer can happen only once.
To transfer the ownership of the NSC, you are required to submit the prescribed transfer form. At the time of ownership transfer, the new certificate would not be issued. Rather, the old name would be rounded and another name would be written on the certificate. The change would be also made into the original application. The post master would certify the NSC transfer by signing over the NSC.
Loan Against the NSC
You can take a loan from the bank by pledging the NSC. Once you receive the National Saving Certificate (NSC)s from the post office you can approach any scheduled bank, cooperative bank or cooperative credit society to get a loan. However, It would be better if you go the bank where you have a saving account.
After the approval by the bank, you have to go the to the post office. The post master will write over the certificate about the pledge to the bank. Once the bank gets the pledged certificate, it would disburse the loan amount. The interest rate of such loan would be less than the unsecured personal loan.
Redemption of National Saving Certificate (NSC)
The redemption of NSC is quite easy. After the completion of 5 years, you have to submit the cetificates to the postmaster of the concerned post office. The postmaster would make you write on the back of the NSC that you have received the maturity amount. It may seem unwarranted before the getting money, but I had to do that.
The maturity amount would be paid through the account payee cheque. It may take upto a week for getting the cheque. Since cheques are issued by the main post office, the local post office takes time in the whole process. The main post office can process your redemption quite early. I would advise to keep the copies of NSC before submitting to the postmaster. It will act as a proof. You can also ask for acknowledgment over the copies of NSC.
The maturity amount would be paid through the account payee cheque. It may take up to a week for getting the cheque. Since cheques are issued by the main post office, the local post office takes time in the whole process. The main post office can process your redemption quite quickly. I would advise you to keep the copies of NSC before submitting to the postmaster. It will act as a proof. You can also ask for acknowledgment over the copies of NSC.
Transfer of Post Office
Suppose, you change the city after buying the NSC. In this situation it may be a real problem of getting back the money from the orginal post office. Thus , there is a provision of NSC transfer among post offices. There is a prescribed form for the NSC transfer from one post office to another. You can apply to either of the post office for the transfer.
Issue of Duplicate NSC Certificate
- You can get duplicate certifcate, if there is a genuine requirement.
- The reason for a duplicate certificate should be any of the following.
- You have to apply in a prescribed form to get the duplicate NSC certificate.
- The application can be made to the post office where certificate is registered. However, you can use another post office as well to forward the application.
- Along with the form, you have to write a letter stating the reason of duplicate certificate. In this letter as well, you have to give all the details of NSC such as issue date, amount and serial no.
- You would be also required to give an indemnity bond in the prescribed form with one or more approved suerities or with bank guarantee.
- A Fee of Rs. 5 would be charged for the issue of Duplicate Certificate.
Interest on National Savings Certificate After Maturity
You would also get the interest after the maturity, if certificate is not redeemed. The rate of interest would be as much as the saving account of post office. As of now, it is 4% per year. Such interest would be given maximum 2 years from the maturity.
Premature Encashment of National Savings Certificate
Normally, you can’t redeem NSC before the 5 years. But, under few situations it is permitted. The reason of premature withdrawal should be any of the following.
- On the Death of the NSC Holder or the Holders in case of Joint Holders
- On forfeiture by a pledgee being a Gazetted Government Officer when the pledge is in conformity with these rules.
- When ordered by a court of law
If the premature encashment happens within one year of the date of issue, you would not get any interest. However, after one year the interest is paid.
There would be a penalty for premature encashment as well.
NSC For NRI And HUF
NRI’s can’t buy National Savings Certificate (NSC). However, NRI can hold the NSC certificate in case he/she has bought NSC before becoming NRI. The NRI can encash the NSC after the maturity.
Now HUF can’t buy NSC, Earlier it was permitted.
NSC Interest Calculation
The calculation of NSC maturity is very simple. Since it is compounded half yearly we have to change the interest rate and duration accordingly.
So to get the maturity value of NSC we should convert the interest rate half yearly. It would be annual interest rate/2. Whereas the period of NSC would be multiplied by 2. It would be 5*2=10
The simple future value formula would give you the maturity value.
Generally you do not require the annual interest earning of NSC. But for the tax calculation, it would be necessary to know the annual accrued interest of the NSC. Accrued interest of every year is added to your taxable income. However it also becomes eligible for tax deduction under section 80C.
So to calculate in the tax on the ingterest of NSC, you need to know the interest every year. This calculator would ease your problem.