National Saving Certificate (NSC) is a fixed-income investment backed by the Government of India. You can open an NSC account in nearby Post Office. When you invest in NSC, you invest your money for a 5-year lock-in period at a fixed rate of interest. Interest rates for NSC are decided by the government on a quarterly basis and that rate is applicable to the investment throughout duration of 5 years.
For example: if you invested in NSC in Jan-24 at an interest rate of 7.7% p.a. This rate of interest would remain constant at 7.7% for that certificate till its maturity irrespective of whether the interest rates increased or reduced during the 5 years.
NSC helps you to get assurance of the amount you’ll receive on maturity irrespective of fluctuating interest rates after you invest. While there is no upper limit on the amount that can be invested in NSC, investors can earn a tax rebate under Section 80C of the Income Tax Act of 1961 for investments up to Rs. 1.5 lakh per year.
Additionally, the interest earned on the certificates is also included in the initial investment and qualifies for a tax break. Moreover, for the first four years, the interest earned on NSC is considered reinvested (i.e., added back to the initial investment) and thus eligible for a tax credit, within the overall annual limit of Rs1.5 lakh under Section 80C.
However, the interest earned in the fifth year is not reinvested and is therefore taxed at the investor’s applicable slab rate.
Latest NSC Interest Rate
Know the latest NSC interest rate for the April-June 2024 quarter, which stands at a fixed 7.7% with a minimum investment of Rs. 1000. Investors are attracted by NSC’s tax benefits. The NSC has a 5-year maturity period and specific requirements for deposits, as well as conditions governing pledge, transfer, and premature closure.
Advantages of NSC
- Low-risk: Investment in NSC is secured and comes with low risk. Technically it is risk-free as it is backed by the Government of India.
- Fixed interest rate: You get fixed interest rates throughout the tenure and give assurance of fixed income.
- Tax Benefits: As a government-backed tax-saving scheme, you can claim up to Rs.1.5 lakh under the provisions of Section 80C of the Income Tax Act, 1961.
- Loan collateral: Banks and NBFCs accept NSC as collateral or security for secured loans by requiring the concerned postmaster to affix a transfer stamp on the certificate and transfer it to the bank.
- Nomination Facility: The investor has the option to nominate a family member (even a minor) to inherit it in the unfortunate event of the investor’s demise.
Disadvantages of NSC
- Low rate of interest: NSC offers a lower rate of interest compared to other investment options available in the market, which cannot beat inflation.
- No Liquidity: You have a lock-in period of 5 years during which your money is unavailable to you. In case of emergency, you cannot withdraw the amount
- E-mode not available: NSCs are mostly available in the physical form as a certificate or passbook which must be presented at maturity so you need to keep it safe till maturity.
NSC vs Fixed Deposit
| Basis | National Saving Certificate | Fixed Deposit |
| TDS deduction | There is no TDS applicable on interest earned | TDS is deducted at the rate of 10% if the interest earned is more than Rs. 40,000 per year. |
| Interest rates | Interest rates offered by NSCs are usually higher than FD rates and the interest is compounded annually | Interest rates on 5-year FDs are usually lower than NSCs and interest is compounded quarterly |
| Interest Rate for Senior Citizens | Senior Citizens do not get a higher rate of interest | Senior Citizens enjoy 0.50% extra interest on their investments |
| Tenure | 5 years | Usually 7 days to 10 years |
| Tax Benefits | Up to Rs. 1,50,000 under section 80C | Only on 5 years FDs upto Rs. 1,50,000 under section 80C |
Who should invest in NSC?
Anyone seeking a safe investment avenue to earn a steady interest while saving on taxes can choose to invest in NSC. NSC offers guaranteed interest and complete capital protection.
However, like most fixed-income schemes, it cannot deliver inflation-beating returns like tax-saving mutual funds and the National Pension System.
The government has promoted the National Savings Certificate as a savings scheme for individuals. Hence, Hindu Undivided Families (HUFs) and trusts cannot invest in it. Furthermore, even non-resident Indians (NRIs) cannot purchase NSC certificates. The scheme is open only to individual Indian residents.
The following are the NSC eligibility conditions that individuals must meet in order to invest in NSCs:
- Hindu Undivided Families (HUFs), Trusts, and Private and Public Limited Companies (PLCs) are not permitted to invest in NSC.
- The individual must be an Indian citizen. Non-resident Indians (NRIs) are not permitted to invest in NSC.
- There is no minimum or maximum age for purchasing a certificate.
How is NSC interest calculated?
The interest in a National Saving Certificate (NSC) compounds once a year. The investor receives the interest after the five years. Each year, the interest earned is reinvested. The NSC Calculator allows you to enter your investment amount, with the term already fixed at 5 years, and the interest rates. After this, the tool calculates the total earnings on the investment at maturity.
The calculator serves as a fast-track source to determine the amount you will receive on maturity. You can instantly assess if the plan aligns with your financial goal without further delay.
You should note that NSC interest compounds annually. This means that the interest calculated on the principal amount invested in NSC should be added to the principal amount to determine the principal amount for the second year.
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing in any scheme.
