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Friday, February 15, 2013

What are National Savings Certificate (NSC)

About National Savings Certificate (NSC)
National Savings Certificate (NSC) is a fixed income/debt long term investment option offered by the Indian Government through postal department.
National Savings Certificate, popularly known as NSC, is a time-tested tax saving instrument that combines adequate returns with high safety, in fact safety sometimes overshadows the returns potential. NSCs are an instrument for facilitating long-term savings. A large chunk of middle class families use NSCs for saving on their tax, getting double benefits. They not only save tax on their hard-earned income but also make an investment which are sure to give good and safe returns.

How to Invest?
National Savings Certificates are available at all post-offices. The application can be made either in person or through an agent. Post office agents are active in nooks and corners of the country.

Types of NSC Certificates
Following types of NSC are issued:
(a) Single Holder Type Certificate: This can be issued to: (a) An adult for himself or on behalf of a minor.
(b) Joint 'A' Type Certificate: Issued jointly to two adults payable to both holders jointly or to the survivor.
(c) Joint 'B' Type Certificate: Issued jointly to two adults payable to either of the holders or to the survivor.

Who can Invest?
Based on the types of NSC certificates as listed above, it is clear that the following can invest in NSC
(a) An adult in his own name or on behalf of a minor
(b) Two adults jointly 
Non-resident Indian/HUFs are NOT eligible to purchase NSCs.

Denominations and Limit
National Savings Certificates are available in the denominations of Rs.100, Rs. 500, Rs. 1000, Rs. 5000, & Rs. 10,000. There is no maximum limit on the purchase of the certificates. So it is for you to decide how much you want to put in the NSCs. This is of course a huge benefit for you can decide as much as your budget allows.

Maturity & Interest Rate
Period of maturity of a certificate is 5 years or 10 years.
(a) NSC VIII Issue (5 years) – Interest rate of 8.6% per annum w.e.f. 01.04.2012
(b) NSC IX Issue (10 years) - Interest rate of 8.9% per annum w.e.f. 01.04.2012
Interest is half yearly compounded. Maturity value of a certificate of any other denomination is at proportionate rate.

Premature Encashment
Premature encashment of the certificate is not permissible except at a discount in the case of :
(a) Death of the holder(s)
(b) Forfeiture by a pledgee
(c) when ordered by a court of law.
So, liquidity is definitely a constraint with this kind of investment.

Tax Benefits

(a) Interest accrued on the certificates every year is liable to income tax but deemed to have been reinvested. This is exactly the way the accrued interest is chargeable on a Fixed Deposit.
(b) Investment up to Rs 1,00,000/- per annum qualifies for Income Tax Rebate under NSC - section 80C of IT Act.
(c) No Tax deducted at source.
(d) The interest accruing annually but deemed to be reinvested will also qualify for deduction under NSC - section 80C of IT Act, again up to a total limit of Rs 1,00,000/- per annum.
(e) Income Tax rebate is available on the amount invested and interest accruing under Section 88 and Section 80L of Income Tax Act, as amended from time to time.Tax rebates under Section 88 are not available to those earning above Rs. 5 lakh a year.
(f) All the interest on maturity is fully taxable.

Other benefits of National Savings Certificate (NSC)
(a) Certificates can be kept as collateral security to get loan from banks.
(b) There is a facility of reinvestment on maturity.
(c) There is a facility of encashment of certificates through banks. Certificates are transferable from one Post office to any Post office. Certificates are encashable at any Post office in India before maturity by way of transfer to desired post office.

Considering various factors, NSC can be an ideal investment for those who want to safe long term investment options that give guaranteed returns; do not need liquidity and who sought for tax benefits.


Manoj Arora

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