National Savings Certificateis a common investment instrument for tax saving and guaranteed returns. First introduced in the 1950s, the scheme quickly climbed the charts with its low-risk feature and government-backed advantage. Conservative investors looking to invest for shorter durations opt to invest in the National Savings Scheme to balance their financial portfolio.
The NSC interest rates are fixed by the government and revised quarterly. The current NSC interest rate for the quarter April-June 2023 stands at 7.7%, compounded annually. Investors can enjoy several tax benefits on the investment amount and the interest earned under Section 80C of the Income Tax Act 1961. Read on to learn more.
1. Historical Data of NSC Interest Rate
Based on the decisions of the Ministry of Finance, NSC interest rates are subject to revision every quarter. The NSC interest is compounded annually but paid only on maturity. Listed below is the NSC interest rate chart of the previous years:
| Period | Interest Rate (% per annum) |
| April 2023 to June 2023 | 7.70% |
| January 2023 to March 2023 | 7.00% |
| October 2022 to December 2022 | 6.80% |
| July 2022 to September 2022 | 6.80% |
| April 2022 to June 2022 | 6.80% |
| January 2022 to March 2022 | 6.80% |
| October 2021 to December 2021 | 6.80% |
| July 2021 to September 2021 | 6.80% |
| April 2021 to June 2021 | 6.80% |
| January 2021 to March 2021 | 6.80% |
| October 2020 to December 2020 | 6.80% |
| July 2020 to September 2020 | 6.80% |
| April 2020 to June 2020 | 6.80% |
| January 2020 to March 2020 | 7.90% |
| October 2019 to December 2019 | 7.90% |
| July 2019 to September 2019 | 7.90% |
| April 2019 to June 2019 | 8.00% |
| January 2019 to March 2019 | 8.00% |
| October 2018 to December 2018 | 8.00% |
2. Interest Applicability on Premature Withdrawal of NSC
Normally, investments in National Savings Certificate cannot be withdrawn before maturity. However, under the following special circ*mstances, premature withdrawal is allowed:
- In the event of the sudden demise of the certificate holder
- If the court passes an order that the amount can be withdrawn
- If the certificate of the holder gets forfeited.
The interest applicability on premature withdrawal of National Savings Certificate is tabled below:
| Time of Withdrawal | Interest Applicability |
|---|---|
| Withdrawal before the completion of 1 year | No interest |
| Withdrawal after the completion of 1 year | Interest offered at the prevailing rate |
The investor shall require the following documents for premature withdrawal of the National Savings Certificate:
- National Savings Certificate Encashment form
- Original National Savings Certificate documents
- Identity proof
- In the case of a minor, the attestation of a guardian is mandatory for premature withdrawal
- In the case the original certificate holder dies, the nominee can encash the invested amount. Nominees must submit Annexure 1 and Annexure 2 forms.
3. How to Calculate NSC Interest Rate
Let us learn how to calculate the NSC interest rate with the help of an example. Consider the following:
Investment made– ₹10,000
Purchase date– 1st July 2019
Interest rate– 7.7% per annum
Lock-in Period– 5 years
| Year | Principal Sum (₹) | Yearly Interest at 6.8% (₹) | Aggregate Interest (₹) | Aggregate Amount (₹) |
| 1 | 10,000 | 770 | 770 | 10770 |
| 2 | 10,770 | 829 | 1599 | 11599 |
| 3 | 11,599 | 893 | 2492 | 12492 |
| 4 | 12,492 | 962 | 3454 | 13454 |
| 5 | 13,454 | 1036 | 4490 | 14490 |
4. Tax Benefits on NSC Investment
One of the key factors that make the National Savings Certificate a popular investment option amongst investors is the tax benefits it offers apart from guaranteed returns. So, you not only earn a fixed income but can also save on tax. Thus, this savings-cum-investment instrument is doubly beneficial. Here are the tax benefits it offers:
- Investors can claim a deduction for the investments made in the National Savings Certificate up to ₹1.5 lakhs per annum underSection 80Cof the ITA.
- The interest on NSC for the first 4 years can also be claimed as an NSC investment deduction. This is because the interest is reinvested in NSC.
The interest earned in the last year, i.e. year 5, becomes available in the hands of the investor. Hence, it becomes taxable under the head “Income from Other Sources” and is taxed as per the applicable tax slab rate of the individual.
5. Documentation Requirement for NSC
Let us look at the documents required to invest in National Savings Certificate:
- National Savings Certificate Application Form filled properly.
- Address proof documentation such as Telephone Bill, Passport, Aadhaar Card, etc.
- Identity proof documentation such as Aadhaar Card, PAN Card, Driving License, etc.
- Recent passport-sized photographs.
- Cheque or cash of the amount you wish to invest.
6. NSC Eligibility
- The individual must be an Indian resident.
- Non-resident Indians are not allowed to invest in NSC.
- All individuals, and minors above 10 years of age can invest in NSC.
- Legal guardians or parents can also buy a NSC on behalf of a minor.
- Hindu Undivided Family, Trusts, Public and Private companies also cannot invest (However, the Karta of Hindu Undivided Family can invest in the National Savings Scheme in their name)
7. Frequently Asked Questions (FAQs)
Is the NSC interest rate fixed?
Yes, the rate of interest on the Post Office National Savings Certificate is predetermined or fixed by the government every quarter.
Is interest on NSC taxable?
Interest on NSC is taxable under the head of “Income from Other Sources”. However, in the first four years, interest is reinvested and therefore, can be claimed as a deduction under Section 80C of the ITA. The final year’s, i.e. 5th year’s interest, is taxable according to your income tax slab.
Is NSC a good investment?
National Savings Certificates offer guaranteed returns, are backed by the government, and also offer tax benefits. However, the return on NSC at present is much lower than other investments, including other government-backed investments like PPF. Although the lower lock-in period and lower risk may seem attractive, NSC returns rarely beat inflation. Other options like ELSS may give better returns over the same investment horizon.
Is there a lock-in period with investment in NSC?
Yes, National Savings Certificate comes with a lock-in period of 5 years. However, premature withdrawal is permissible under special circ*mstances which include a court order, sudden demise of the investor, or if the certificate gets forfeited.
Which is better NSC or PPF?
National Savings Certificate and Public Provident Fund are government-backed investment schemes with different features. For instance, NSC has a minimum investment duration of 5 years while PPF is a long-term retirement investment instrument with a tenure of 15 years. When considering returns, PPF currently offers an interest rate of 7.1% p.a. whereas NSC returns are 7.7% p.a. Therefore, you will need to consider these aspects before investment. If you have a long-term investment horizon, PPF may be more suitable. If your investment horizon is shorter, NSC may be a more suitable option than PPF.
However, returns on both NSC and PPF barely beat inflation. An alternative worth considering is ELSS mutual funds.ELSS mutual fundsare market-linked and hence, have provided higher returns over a medium to long-term investment horizon in the past. At the same time, they offer tax benefits under Section 80C, much like NSC and PPF.
Payable option for the purchase of NSC?
Investors can buy National Savings Certificate through cash, cheque, or demand draft at post offices or banks. With a savings account and internet banking at a post office or at an authorized bank, you can also buy NSC through the e-mode.
How to Show NSC Interest in Income Tax Return?
The interest earned from National Savings Certificate (NSC) is taxable only in the last year when the interest earned is not reinvested. So, in case you have invested in a 5 year NSC, the interest earned during the initial 4 years has to be included as a tax-saving investment under Section 80C in your Income Tax Return (ITR). The NSC interest earned in the 5th year is taxable, so it has to be included in the taxable income declared in your ITR under the head “Income from Other Sources”. This interest income from NSC is subsequently taxed as per your applicable slab rate.
Which is better – NSC or PPF?
Even though NSC and Public Provident Fund (PPF) both provide guaranteed returns, each has some advantages and limitations. PPF is better than NSC in terms of offering a higher interest rate and providing complete exemption in terms of amount invested, interest earned, and maturity amount. In the case of NSC, the interest earned at maturity is subject to tax so actual returns are lower than the interest rate offered. However, the lock-in period of PPF is 15 years, whereas NSC matures in 5 years. So NSC offers better flexibility to investors. Whether NSC or PPF is better depends entirely on your investment goals.
How To Show NSC Interest In Income Tax Return
The interest earned from NSC at maturity needs to be declared under the head “Income From Other Sources” in your Income Tax Return. However, the interest earned during the first 4 years of NSC investment can be claimed as deduction under Section 80C of the Income Tax Act, 1961.
This is because the interest earned during each of the first 4 years gets reinvested into your NSC account, and can be treated as a tax deductible investment. To receive the tax deduction benefit, you have to declare the interest earned from your NSC investment each year under the head of Section 80C investment.
