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National Savings Certificate as a Security for Loan

National Savings Certificate (NSC) is one of the safest investment options for senior citizens and for salaried individuals. And it is offered through Post Office which is one of the oldest and largest financial providers which caters to the needs of both the urban and rural Indian citizens. Compare to all the other financial providers, post office provides a low risk and good return investment products to its customers. And it can be purchased from any Post Office in India by an adult either in his / her name or on behalf of a minor, a trust or two adults jointly. Government provides two different issues of NSCs which includes NSC – VIII Issues and NSC IX Issues. Under NSC VIII Issue, an eligible person can invest for 5 years and under NSC IX Issue, an eligible person can invest for 10 years.

It is often difficult to arrange loans or funds for investment purpose for tax benefits. Also tax payers it often becomes to invest money for a longer period for any scheme. But present provision of the Income Tax Act has products to meet needs of various taxpayers encompassing tenure, security and returns. NSC has tenure of six years and the interest rate would not fluctuate based on the market risk and that’s why it is considered to be one of the safest investment options in India unlike PPF (Public Provident Fund) account which can be changed without any prior notice.

Borrow to Invest in NSCs

In case you are going through a financial crisis, you can go to the extent of temporarily borrowing from your friends or relatives and buying NSCs to the extent of unutilised portion of the deduction available under Section 80C.

You can pay either in cash or demand draft or cheque. But it is advisable that you should pay cash as the certificate will be issued immediately.

Process for taking the loan

In case you have received your certificate from the post office, visit a scheduled bank or cooperative bank or cooperative credit society in order to ask for a loan through your National Savings Certificate.

Write an application for marking pledge on the NSCs in favour of the lender which requires a signature by both the holder and lender.

Now submit the receipt of the NSCs duly marked as pledged, the bank will disburse the loan.

Under NSC you can take either take a flat loan against NSC by paying the monthly pay EMI option or you can obtain an overdraft facility against security of these.

A borrower can get a National Savings Certificate (NSCs) as security to the lending institution or bank that has provided a loan.

Follow the below mentioned procedure in order to do so:

  1. Form

The borrower must fill the form NC 41and once filled submit it to the post office. You can get this form from the Post Office or you can also download it from official website of Indian Post Office. Signature of both the borrower and lender is required on that form and include original certificates that are to be pledged.

  1. Approved Pledges

Under the Post office rules Pledge has to be made in order to approve pledges and this pledge can be made in favour of the Reserve Bank of India (RBI), scheduled bank or co – operative society.

  1. Process

Once you have submitted the form, the post office will investigate and verify your application.

  1. Fees

The post office may charge some nominal amount for executing and release of the pledge as applicable

  1. Release of pledge

Till the pledge is released, the pledgee is deemed owner of the certificates. Once a release order is received by the post office from authorised person representing the pledgee, it will retransfer the certificates.

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