National Savings Certificate (NSC) Explained
The NSC is a popular fixed-income investment scheme in India, offering tax benefits and guaranteed returns.
What is NSC?
The National Savings Certificate (NSC) is a savings bond scheme promoted by the Government of India. It's a low-risk investment that encourages small savings and offers tax benefits under Section 80C of the Income Tax Act.
NSCs are primarily sold through post offices and are a popular choice for individuals looking for a secure investment with a fixed return and tax advantages.
Key Features of NSC
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Fixed TenureNSC currently comes with a fixed maturity period of 5 years.
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Guaranteed ReturnsThe interest rate is fixed at the time of investment and compounded annually, but paid at maturity.
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Tax BenefitsInvestments up to ₹1.5 lakh per financial year are eligible for deduction under Section 80C of the Income Tax Act. The interest earned is also taxable, but the interest for the first four years is deemed reinvested and thus qualifies for 80C deduction in those years.
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Minimum InvestmentYou can invest with a minimum of ₹1,000 and in multiples of ₹100, with no upper limit on the maximum investment (though 80C benefits are capped).
Note: Interest rates for NSC are reviewed and declared by the government quarterly. The rate applicable will be the one prevailing at the time of your investment for the entire 5-year tenure.
How NSC Maturity Value is Calculated
The maturity value of an NSC is calculated using the compound interest formula, where interest is compounded annually but paid out at the end of the 5-year tenure. The formula used is:
$$A = P (1 + R)^T$$
Where:
- $A$ = Maturity Amount
- $P$ = Principal Investment Amount
- $R$ = Annual Interest Rate (as a decimal)
- $T$ = Tenure in Years (always 5 for NSC)
Frequently Asked Questions
The investment amount up to ₹1.5 lakh per financial year qualifies for deduction under Section 80C. The interest earned is taxable, but for the first four years, the interest is assumed to be reinvested and hence also qualifies for Section 80C deduction. Only the interest for the fifth year (maturity year) is fully taxable in the hands of the investor.
Premature withdrawal of NSC is generally not allowed before 5 years, except in specific cases like the death of the investor, forfeiture by a pledgee (Gazetted Officer), or court order.
NSC is considered a safe and reliable investment option, especially for conservative investors seeking guaranteed returns and tax benefits under Section 80C. While it may not offer the highest returns compared to market-linked instruments, its safety and tax advantages make it attractive.