Indian Income Tax
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National Saving Certificates (NSC)

National Savings Certificate, popularly known as NSC is an assured investment scheme. It is a time-tested instrument providing double benefits; one is tax savings and the other is adequate returns with high safety. They facilitate long-term safe saving options for the investor. NSCs are a good investment option for salaried class people, businessmen as well as government employees. When you buy a NSC for a particular value, the interest compounded is returned along with the principal amount only after the maturity. It is a cumulative scheme wherein the interest is reinvested. The duration for an NSC is 6 years. Owing to it being time-bound, NSCs have low liquidity.

NSCs are available at all post offices across the country. They are issued by the Department of Post. Many middle class people in the country buy NSCs for saving tax as well as to earn decent return on their investment. Though NSC has much competition from other investment options like shares and mutual funds, yet it is highly popular owing to its respectable returns which are government guaranteed as well as tax-exempt.

Interest and Returns

NSC attracts interest rate of 8% per annum compounded half-yearly. Because of compounding, the effective rate of interest comes to 8.16%. NSCs are under a cumulative scheme and the entire interest earned every year is reinvested. It is paid along with the principal amount only after the maturity of the certificate. For example, if a person invests Rs. 10,000 in NSC today, he will receive Rs. 16,010 after 6 years.

Features of National Savings Certificate

  • Pre-mature encashment is not permissible.
  • Reinvestment of the annual interest earned.
  • Post office savings account interest benefit for 2 years, if amount is not drawn at maturity.
  • Reinvestment of amount after maturity is allowed.
  • Loan can be availed against the security of the certificate.
  • Nomination facility available.
  • Transferable from one Post office to another.
  • Transferable from one person to another.
  • Duplicate Certificate issued in case the certificate is lost, stolen, mutilated or defaced.

Types of NSCs and Eligibility

Any adult individual can buy NSC for himself or on behalf of a minor. Two adults can jointly buy the certificate. Even a trust can buy NSCs. There are basically 3 types of certificates that can be bought by individuals:

Single Holder Type Certificate: This certificate can be bought by an individual in his name or on behalf of minor, or a trust.

Joint 'A' Type Certificate: this certificate is issued to 2 adults jointly and is payable to both holders jointly or to the survivor.

Joint 'B' Type Certificate: This certificate is issued to 2 adults jointly payable and is payable to either of the holders or to the survivor.

How and Where to Apply

NSCs can be purchased at authorized post offices and all head post offices across the country. A person can apply for an NSC in a prescribed manner at any of the post offices. NSC can be applied for in person or through an agent. Agents for this purpose are active in every nook and corner of the country. NSCs are available in denominations of Rs. 100, Rs 500, Rs. 1000, Rs. 5000, & Rs. 10,000. Minimum purchase is for Rs. 100 and there is no maximum limit to the purchase of NSCs. A person can invest as much as his budget allows. Payment for NSCs can be made in cash or by a locally executed cheque or order or through a demand draft in favor of postmaster. A duly signed withdrawal form along with passbook to enable withdrawal from savings account of post office could also be used as a payment mode. Also payment can be made by surrendering a matured old certificate discharged as ”Received payment through issue of fresh certificate vides application attached.”

Encashment

The NSC can be encashed at any registered or authorized post office. The authority needs to be satisfied with the identity of the person presenting the certificate. On receipt of the amount, the receiver signs the back of the certificate as a proof of receipt. The NSCs can also be encashed through banks or by transferring them to the desired post office.

If the certificate is purchased on behalf of a minor, and at the time of maturity the minor has attained the age of adult, then that recent adult needs to sign the certificate. The signature needs to be attested by the person who bought the certificate in his behalf or by the postmaster.

The maturity period of NSC is 6 years. Generally pre-mature encashment is not allowed but in cases like death of the holder, forfeiture by the nominee or court’s order, the NSC can be encashed prematurely.

Tax benefits

Deposits in NSCs up to Rs. 1 lakh can be availed as deduction under Section 80C of the Income Tax Act. The annual interest earned is deemed to be reinvested and thus qualifies for the deduction under Section 80C.

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