National Savings Certificate

National Savings Certificate(NSC) is a popular tax saving debt instrument. NSCs are issued by the Government of India. Eligibility: Any individual can purchase an NSC, singly or jointly. Investment Limits:  The minimum amount is Rs. 100. There is no maximum limit. NSCs are available in denominations of Rs. 100, 500, 1000, 5000 and Rs. 10,000. The rate of Return: NSCs come with a 7.6% rate of return, compounded yearly. The government revises this rate very quarter. Time Period: NSCs have a maturity of 6 years. Withdrawal: There are 2 maturity periods, 1 for 5 years and then for 10 years. No premature withdrawal is permitted in NSC. NSC states that there is a possibility of withdrawal only on special cases which are mentioned as below.
  • On death of holder or any holders in case of joint holding;
  • on forfeiture pledge by Gazetted Govt. Officer
  • When ordered by court of law.
Tax Treatment: Amount used to purchase NSCs qualify for deduction under Section 80C. But the interest earned on NSC is taxable. However, the interest that accrues each year is automatically re-invested also qualifies for deduction under Section 80C in the year of accrual.No TDS is deducted on the payout. Others: The Certificates can be transferred from one person to another after one year from the date of the certificate with the consent of the Postmaster. One can avail a loan against the NSCs by pledging them with the bank. FinPlan Café Note: Positives: The interest that accrues each year and is automatically re-invested qualifies for deduction under Section 80C. Negatives: The interest is not paid out periodically, it accrues half yearly and is re-invested. The interest earned on the NSCs is taxable. Conclusion: NSC is best suited for one looking for assured returns and safety of principal. Tax deduction is an added benefit.
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