• Jan
  • 25
  • 2013

All about NSC and Tax Benefit

What is National Savings Certificate?

National Savings Certificate is an Investment alternative developed by Government of India with an intention to induce persons to a saving habit and to develop National Savings. National Savings Certificate is issued through Post Offices; they are the nodal agency which makes it available to the common public.

National Saving Certificates in India is ranked as ‘highly secured’ in the class of Investments. It is an Investment’ which has Tax Advantage while (i) Investing, (ii) during the life and (iii) at the time of maturity of the Investment.

Investment limit

There is no Limit for Investment in NSC.

Tax treatment

Deposits  up to Rs.1 lakh  in NSC qualify for Deduction Section 80C of the Income Tax Act. Accrued interest on NSC also qualify for deduction u/s. for first five years.

NSC interest is taxable. However, as it is a cumulative scheme (e.g. interest is not paid to the investor but instead accumulates in the account), each year’s interest for the first 5 years is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. Only the final year’s interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the earlier years and the capital amount.

What you must ensure while filing tax return

To benefit from this feature of reinvested interest and its deduction, it is important to declare the accrued interest on NSC on a yearly basis in your tax return under the head “Income from Other Sources”. Under deductions, you will claim accrued interest for first five years  under Sec 80C as reinvested NSC interest. Both cancel each other out, making the interest in effect tax-free.

Non-Resident Cannot Invest

Non-Resident Indians are not eligible to purchase the National Savings Certificates.

Denominations in which certificates shall be issued

The National Savings Certificates (IX Issue) shall be issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, Rs. 10000.

Can be Purchased Jointly and on behalf of minor

Types of Certificates and Issue thereof,

(1)  The certificates shall be of the following types, namely:—

(a)  Single Holder Type certificates;

(b)  Joint ‘A’ Type Certificates; and

(c)  Joint ‘B’ Type Certificates;

(2)  (a)  A Single Holder Type certificate may be issued to an adult for himself or on behalf of a minor or to a minor;

(b)  A Joint A Type certificate may be issued jointly to two adults payable to both the holders jointly or to the survivor,

(c)  A Joint ‘B’ Type certificate may be issued jointly to two adults payable to either of the holders or to the survivor;

Where to Purchase

National Savings Certificates (NSC) are certificates issued by Department of post, Government of India and are available at most post offices in the country. This Certificate can be transferred from a post office where it is registered to any other post office and it can be pledged as a security.

Main Features of  NSC VIII Issue

  • Scheme specially designed for Government employees, Businessmen and other salaried classes who are Income Tax assesses.
  • No maximum limit for investment.
  • No Tax deduction at source.
  • Certificates can be kept as collateral security to get loan from banks.
  • Investment up to INR 1,00,000/- per annum qualifies for IT Rebate under section 80C of Income Tax Act.
  • Trust and HUF cannot invest.
  • Rate of interest 8.60%.
  • Maturity value of a certificate of INR.100/- purchased on or after 1.4.2012 shall be INR. 152.35 after 5 years.

Main Features of  NSC IX Issue

  • No maximum limit for investment.
  • INR. 100/- grows to INR 234.35 after 10 years.
  • Minimum INR. 100/- No maximum limit available in denominations of INR. 100/-, 500/-, 1000/-, 5000/- & INR. 10,000/-.
  • A single holder type certificate can be purchased by an adult for himself or on behalf of a minor or to a minor.
  • Rate of interest 8.90%.
  • Maturity value of a certificate of INR.100/- purchased on or after 1.4.2012 shall be INR. 238.87 after 10 years.

Buy National Savings Certificates (NSCs) every month for Five years – Re-invest on maturity and relax – On retirement it will fetch you monthly pension as the NSC matures.

Want to Know More –Read the Following post –

National Savings Certificates (IX-Issue) Rules, 2011

(Republished with Amendments)


14 Responses to “All about NSC and Tax Benefit”

  1. Subhendu Sekhar Hari says:

    Sir,

    I am now 60+, like to continue prolong job for further 6 Years, and say 2020 I like to get back all my NSC Money what ever I will be depositing, how to proceed,guide line requested.

    Regards

    Subhendu Sekhar Hari

  2. Vipin Choudhary says:

    If i purchase NSC on the name of my wife, will it be useful for tax benefit for me???

  3. abhishek says:

    What is the minimum no. Of years for NSC is required to make it eligible for tax exemption.

  4. Chandrasekar says:

    Hi, Thanks for the uswful info.
    Is NSC IX Issue( Investment of 10 years) applicable under 80C?
    Please clarify.

  5. Jeyaram G says:

    Thanks for the useful article.
    Article says interest accured can be considered tax exempted for first 5 years. Is it applicable for 10 year NSC also ? meaning, for the first 5 years of NSC , accrued income need not be considered for tax purpose. If so, in the 6 th year of 10 year NSC, does the total interest accured from 1st to 6th year have to be considered for tax? Request clarificationpl.

  6. Saritha says:

    Please explain the tax implications when the NSC matures.

  7. pal says:

    Please explain how is income from nsc in a way tax free as mentioned above

  8. sanjeev says:

    Is NSC ix issue also eligible for tax rebate under 80 c or any other section???

  9. Ashok Bidnur says:

    Whether second name holder in joint NSC can claim exemption under 80c of income Tax Act.?

  10. Bhakti says:

    Is it compulsary to have 1st name on certificate to get rebate. can other holder get rebate of 80 c ? please guide me

  11. Duke Sekhon says:

    Thanks for the useful information for the lay taxpayer.

  12. NIRAJ says:

    KYC DOCUMENTS ARE REQUIRED FOR PURCHASE

  13. NIRAJ says:

    YES ,THE FIRST HOLDER WILL GET 80C REBATE IN JOINT A OR B –NSC CERTIFICATES

  14. Shubham says:

    Can we use Joint B NSC certificates with First name as Tax payee, for Income tax rebate

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