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National Saving Certificates – A Complete guide
National Saving certificate is issued by Post Offices in India and is a very good small saving scheme. Do you know that investment in NSC can be created in such a way that it provides regular fixed income and can be used as one of the retirement planning options?
In this article we would discuss complete details about National Saving Certificate, how this is used for reducing tax, how the interest income is taxed and how to use this to create regular monthly income.
Features of National Saving Certificate (NSC)
National Saving Certificate is issued by Post offices and is backed up by the Govt. of India.
- NSC’s are available for 5 and 10 years period
- NSC’s are available for a minimum investment of Rs. 500 and in multiples of Rs. 500 / Rs. 1,000 / Rs. 5,000 / Rs. 10,000
- There is no maximum limit
- Interest rates are 8.5% p.a. for 5 year NSC (VIII) and 8.8% p.a. for 10 years NSC (IX)
- Rs. 100 invested in 5 year NSC would fetch Rs. 151.62 and in 10 year would fetch Rs. 234.35
- Interest is compounded every half year
- Nomination facility available
- Individuals, Joint individuals and minor supported by guardian can invest NSC.
- Societies / Companies cannot invest in NSC. However NRI's can invest in NSC.
- NSC's can be purchased at post offices by filling up the application form along with ID proof.
- NSC's are not available online
How NSC’s are useful?
National Saving certificates are purchased mainly for tax saving purpose. Investment up to Rs. 1 lakhs can be claimed under 80C for income tax purpose.
NSC’s provide assured returns. Currently the interest rates are 8.5% p.a. for 5 years NSC and 8.8% p.a. for 10 year NSC
Liquidity and premature withdrawal
From liquidity point of view, these can be pledged with banks for loan purpose. Premature withdrawal is not permitted.
Taxability
Investment in NSC up to Rs. 1 lakh is exempted from income tax under section 80C.
The interest income on NSC is assumed to be re-invested. From taxability point of view, this needs to be added under “Other income” and the same can be claimed as exemption under section 80C. In case, any individual has already exhausted Rs. 1 lakh exemption under 80C, it becomes taxable income.
Any interest amount not taxed (accrual basis) every year becomes taxable at maturity. Means the interest income at maturity is NOT tax free.
Maturity
There is no TDS deducted by post office on interest income. It should be declared by individual as taxable income either every year or during maturity.
If NSC’s are not withdrawn, it would be eligible for interest at prevailing post office savings scheme (which is currently 4% p.a.) for a maximum period of 2 years.
You can transfer NSC from one post office to another post office before maturity by submitting an application form.
Creating regular income from NSC’s for retirement
No wonder this investment option can be used for even retirement planning or to get regular fixed amounts.
Invest in NSC (NSC-IX-10 years) every year for 10 years. After 10 years, you would get regular assured amounts for subsequent 10 years. Since the capital and returns are protected and backed up by Govt. of India, this can be used as a best retirement planning option.
| Year of investment | Amt invested (Rs) | Maturity date | Maturity (Rs) | |||||
| 2013 | 1,00,000 | 2023 | 2,34,350 | |||||
| 2014 | 1,00,000 | 2024 | 2,34,350 | |||||
| 2015 | 1,00,000 | 2025 | 2,34,350 | |||||
| 2016 | 1,00,000 | 2026 | 2,34,350 | |||||
| 2017 | 1,00,000 | 2027 | 2,34,350 | |||||
| 2018 | 1,00,000 | 2028 | 2,34,350 | |||||
| 2019 | 1,00,000 | 2029 | 2,34,350 | |||||
| 2020 | 1,00,000 | 2030 | 2,34,350 | |||||
| 2021 | 1,00,000 | 2031 | 2,34,350 | |||||
| 2022 | 1,00,000 | 2032 | 2,34,350 | |||||
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