Everything You Need To Know About National Savings Certificates

This is your go-to guide to National Savings Certificates. National Savings Certificates are a good option if you’re looking for investments with a maturity period, not more than 10 years. If you want to compare National Savings Certificates with the Public Provident Fund, we’ve done that for you too.

What is a National Savings Certificate?

The National Savings Certificates is a small savings instrument which gives you a combination of tax savings and guaranteed returns. The National Savings Certificates is one of the safest investments available at post offices.

Tenure of National Savings Certificates

National Savings Certificates are available for two tenures.

• NSC VIII which has a lock-in period of 5 years.
• NSC IX which has a lock-in period of 10 years.

The NSC IX Certificates for a period of 10 years is available in denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs. 10,000.

Interest Rates on National Savings Certificates

If you choose to invest in an NSC for a period of 5 years, you will get an interest rate of 8.50% p.a.

If you choose to invest in an NSC for a period of 10 years, you will get an interest rate of 8.80% p.a.

Interest rates are fixed annually for National Savings Certificates and interest is compounded on a half-yearly basis.

Eligibility to Invest in National Savings Certificates   

To invest in National Savings Certificates you need to be a Resident Indian. 

Types of National Savings Certificates

National Savings Certificates can be purchased jointly and on behalf of minors. There are three types of National Savings Certificates.

• Single Holder Type Certificates. These certificates can be issued to adults to be held in his/her individual capacity or on behalf of a minor. These certificates can be issued to minors also.
• Joint ‘A’ Type Certificate. These certificates can be issued to two adults where the maturity amount is payable to both holders jointly or to the survivor.
• Joint ‘B’ Type Certificate. These certificates can be issued to two adults and the maturity amount is payable to either of the holders or the survivor.

Features of National Savings Certificates

• No Investment Limit

There is no maximum investment limit for investments in National Saving Certificate. However, investments above Rs. 1, 50,000 will not be eligible for tax deduction under Section 80C of the Income Tax Act.

• Liquidity of National Savings Certificates

Although National Savings Certificates have a lock-in period of 5 years and 10 years, you can use your National Savings Certificates as collateral security to get loans from banks.

• Premature Encashment of National Savings Certificates

With National Savings Certificates premature encashment is permitted.

If you want to liquidate your National Savings Certificates within one year from the date of issue you will get back only the face value of the certificates.

If you liquidate the certificate after the completion of one year but before the completion of three years from the date of issuing the certificate, the amount payable to you will be the face value of the certificates including simple interest.

• Transferability of National Savings Certificates

You can transfer National Savings Certificates from one person to another before the maturity of the certificates.

• Tax Benefits of National Savings Certificates

National Savings Certificates are a good option for tax savings. Deposits in National Savings Certificates up to Rs. 1, 50,000 are eligible for tax deduction under Section 80C of the Income Tax Act.

Interest on the certificates is taxable. But since it is a cumulative scheme, where the interest accumulates in the account, each year’s interest is considered as reinvested in the National Savings Certificates.

To benefit from the tax deduction on National Savings Certificates you must remember to declare the accrued interest on the certificates every year in your tax return.

You can claim the accrued interest as reinvested NSC interest under Section 80C of the Income Tax Act for all the years except the last year when the investment matures.

Where to Purchase National Savings Certificates

You can get National Savings Certificates at most Post Offices in India. The certificates are issued by the Department of Post, Government of India.

National Savings Certificates can also be transferred from the post office where it is registered to any other post office in the country.

Public Provident Fund or National Savings Certificates. What to choose?

We’ll give you a brief overview to help you choose between National Savings Certificates and a PPF account.

• Flexibility. National Savings Certificates are issued for a period of 5 years or 10 years. A PPF account has an initial lock-in period of 15 years.  

• Type of Investment. National Savings Certificates are a one-time investment. If you want to add more funds to your NSC you will need to purchase another certificate. A PPF can be used for systematic monthly investments which allow you to add funds to a single account. 

• Withdrawals. Your investment in National Savings Certificates is easy to withdraw if the need arises. The procedure to withdraw funds from a PPF account is subject to various conditions.

• Tax Benefits. Both National Savings Certificates and PPF are eligible for deductions under Section 80C of the Income Tax Act. The interest on National Savings Certificates is taxable. Your entire investment in a PPF account, including interest is exempt from tax.

Additional Reading: PPF as a tax saver and investment option

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