Introduction
I was exploring options for safe funds, other than mutual funds to invest my money, fixed deposits have a very low interest rate ranging from 6% to 7.25%, for a normal citizen. While searching I came across NSC that is a secure investment option provided by the Government of India through post offices, luckily I had my account in post office, hence as It offers reliable return of 7.7% and significant tax benefits under Section 80C of the Income Tax Act if you opt for old scheme, ignoring tax benefits, the interest rate and savings plan attracted me to invest.
Who Should Invest in NSC?
Any individual who is looking for a safe investment and to earn a steady interest while saving on taxes can choose to invest in NSC, even it is predicted that RBI may decrease interest rates this year, but NSC offers guaranteed interest and complete capital protection. However, like most fixed income schemes, they 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 exclusively for for resident individuals, who are more than 10 years of age. That’s the reason, Hindu Undivided Families or trusts are ineligible to invest in it.
Now main discouragement is 5-year lock in period, but main relief is, the banks and NBFCs accept NSC as collateral or security for secured loans. To make it done, the concerned postmaster is required to put a transfer stamp on the certificate and make it transferred to the bank.
When will you receive your capital back?
You will receive your corpus or capital invested back upon maturity i.e. after five years, you will receive the entire amount you invested along with compounded interest. As currently there is no TDS on NSC payouts, the investor is required to pay the applicable tax on it.
NSC Interest Rate History
NSC Interest Rates might be changed as they are reviewed quarterly by the Ministry of Finance, Good thing is that the interest on NSC is compounded annually and disbursed upon maturity.
NSC will take about 10 years and 4 months (approx.) to double your investment at the current interest rate of 7.7% p.a i.e. INR 1,00,000 will become INR 2,00,000 after maturity.
Just sharing with you the chart depicting the historical NSC interest rates from previous years:
| Financial Year | April-June | July-September | October-December | January-March |
| 2023-2024 | 7.7% | 7.7% | 7.7% | 7.7% |
| 2022-2023 | 6.8% | 6.8% | 6.8% | 7.0% |
| 2021-2022 | 6.8% | 6.8% | 6.8% | 6.8% |
| 2020-2021 | 6.8% | 6.8% | 6.8% | 6.8% |
| 2019-2020 | 8.0% | 7.9% | 7.9% | 7.9% |
| 2018-2019 | 7.6% | 7.6% | 8.0% | 8.0% |
| 2017-2018 | 7.9% | 7.8% | 7.8% | 7.6% |
| 2016-2017 | 8.1% | 8.1% | 8.0% | 8.0% |
Tax Benefits of NSC Investment
Let’s discuss this with an example, suppose you have invested INR 1,00,000 in National Savings Certificate at 7.7% interest which is compounded annually for 5 years, and it starts on 1st April 2024, here’s how taxation works:
Tax Treatment of NSC Interest
The interest received on NSC is Taxable on accrual basis, that means the interest earned on NSC is taxable under the head “Income from Other Sources” every year, even though you receive it only at maturity.
Interest is Eligible for Deduction Under Section 80C if you are opting for old scheme of income tax, but as the interest for the first 4 years is reinvested hence only that is qualified for deduction under Section 80C, subject to the overall limit of INR 1,50,000
Interest received on NSC in Fifth-Year will be Fully Taxable as it will not get reinvested, for this reason it is fully taxable in the year of receipt.
When are you required to Pay Tax?
For the first 4 years (FY 2024-25 to FY 2028-29), the Interest accrued each year is taxable but can be claimed as a deduction under Section 80C, for fifth year (FY 2029-30), the final year’s interest is fully taxable, without any deduction benefit.
Let’s discuss this with a table
As assumed we invested INR 1,00,000 to NSC, at interest which is compounded annually at 7.7%, the approximate interest accrual would be:
| Financial Year | Interest Accrued | Taxability | Eligible for 80C Deduction? |
| FY 2024-25 | ₹7,700 | Yes | Yes |
| FY 2025-26 | ₹8,392.9 | Yes | Yes |
| FY 2026-27 | ₹9,038,9 | Yes | Yes |
| FY 2027-28 | ₹9,735.5 | Yes | Yes |
| FY 2028-29 | ₹10,486.7 | Yes (Fully Taxable) | No |
What if you are opting for new scheme of income tax?
In case of new tax regime, which does not allow interalia deductions under Section 80C, the tax treatment of your NSC interest will be different.
Tax Treatment in New Regime will make interest taxable every year without any deductions as the new tax regime does not allow Section 80C deductions
Can NSC be withdrawn before maturity?
NSC comes with a lock-in period of 5 years, i.e. it cannot be withdrawn before maturity, but as an exemption, NSC can be prematurely withdrawn only in three cases, first one is on the death of a single account, or any or all the account holders in a joint account, secondly on forfeiture by a pledgee being a Gazetted officer or thirdly on the order by court.
Now, How to Invest in NSC offline or online?
To invest in NSC offline, first collect the NSC application form online or at any post office, fill it with all the details, then submit the form with self-attested copies of the required KYC documents, don’t forget to take the original documents for verification and pay the amount you want to invest and upon approval, collect the NSC of your application.
On the other hand, to invest in NSC online, first you are required to open department of posts (DOP) net banking and log in, then under ‘General Services’, select ‘Service Requests’, Click on ‘New Requests’ and choose ‘NSC Account- Open an NSC Account (For NSC)’, then enter the deposit amount and choose the debit account linked to the PO savings account after that choose ‘Click Here’ to run through the terms and conditions. accept them once done, then enter the transaction password and click on ‘Submit’, The deposit receipt will be there to view and download, you may login and click on ‘Accounts’ to view the details of your NSC account.
Documents required to apply for NSC
Investors are required to submit identity proof, such as a passport, permanent account number (PAN) card, driver’s license, senior citizen ID, or any other official government identification, Photograph and address proof, like electricity bill, passport, phone bill, or bank statement for applying for NSC
Comparing NSC with Other Tax-saving Investments
| Investment | Interest | Lock-in Period | Risk Profile |
| NSC | 7.7% p.a. | 5 years | Low-risk |
| PPF | 7.1% p.a. | 15 years | Low-risk |
| FD | 7.25% to 7.5% for other than senior citizens | 5 years | Low-risk |
| NPS | Market-linked, historical returns show 8% to 10% p.a. | Till retirement | Market-related risks |
| ELSS funds | Market-linked, historical returns show 12% to 15% p.a but involves high risk | 3 years | Market-related risks |
Can you request for a duplicate national savings certificate?
You can seek a duplicate if your original NSC certificate is lost, stolen, destroyed, damaged, or mutilated, for this you must simply complete and return the duplicate savings certificates form to the post office which issued you the NSC which is needed to be replaced.
Conclusion
The National Savings Certificate is a secure and tax-efficient investment option backed by the Government of India. With a competitive interest rate of 7.7% and benefits under Section 80C (for those opting for the old tax regime), it provides a reliable way to grow savings while ensuring capital protection. Though it comes with a five-year lock-in period, it can be used as collateral for loans. However, investors should be mindful of its taxability, particularly in the fifth year when the interest becomes fully taxable. Compared to other tax-saving instruments, NSC stands out for its safety and predictable returns, making it an ideal choice for conservative investors.
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Author can be contacted at aman.rajput@mail.ca.in
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