National Savings Certificate (NSC)

The National Savings Certificate (NSC) was introduced by the government of India to ensure that the tax paying does not become an overburden for the people. It is a government saving bond which is tax-free. Saving bonds as the name suggest are bonds with guaranteed tax benefits to the investors. Any amendment or changes to the National Saving Certificate must be done in accordance with the provisions of the Income Tax Act of 1961.

The government of India charges tax on taxable income of all individuals, Hindu Undivided Families, companies, firms etc. While some people consider it as a civic responsibility, there are many who considers it as a liability. It is important to pay taxes because the tax that you pay goes to many places like government services, government officials, policemen, fire fighters, scholarship programs and schemes for the poor, in the building of roads etc.

The NSC is a bond or a document which guarantees benefits on investment after the completion of the tenure of the bond.

Importance of Savings and the Introduction of NSC

The main aim of the government to introduce small saving programs in India is ensure thrift and savings by the people. This is due to an ever increasing dependence of Indian economy on foreign capital. Although it must be noted that foreign capital is particularly important in developing countries to ensure economic growth, depending upon the severity of fiscal deficit and the extent of government borrowings. However, any increase in the current national debt would also mean the increase in interest payment in the future. Thus, the fiscal deficit is an unsustainable process as it may lead to economic shocks and reduced government spending on public services.

A fiscal deficit arises due to low individual savings. Low individual savings leads to low national savings. Low national savings means insufficient funds for economic growth leading to a country’s dependency on foreign capital. The increase in dependence on foreign capital will lead to decrease in government expenditure on social welfare programs and rural development which in turn, adversely affects the economic growth of the country.

Thus, keeping in view the importance of saving the government of India promoted the National saving certificate during the 1950s to encourage savings for nation building purpose. The national saving movement was volunteered not only by government organization but also by government officials and many local committees.

The national savings movement was started during 1950 to convert the national economy from a consumptive economy to a nation of savers. The movement stressed the importance of savings by stating that this would not only act as a safety net against unnecessary debts but also check inflation indirectly. Keeping in mind the high level of the price of the commodities the ministers asked people to bear some more difficulties and save. Another feature of the movement is that through this movement the government has asked the people to help through investment so as to restart the welfare programs like dams, electricity which was withheld due to lack of finance by the government.

Mr. C.R Shrinivasan chairman of the Provisional National Saving committee stated that small savings play a very important role as an alternative source of capital at the time of a national emergency. According to him, small personal savings in India are scattered and there are no systematic efforts to channelize these savings flows to banks, insurance companies or investment market.

Endorsing Mr. C.R Srinivasan, Smt. Kuttimalu Amma emphasized the importance of National Saving Certificate. Dr. P.V Cherian further emphasized the importance NSC by stating that these certificates are national in character and stressed the importance of maintaining the finance of the state. In this context, Mr. Kumarswami stated: “Savings, however small they be, investment in the government loans being the highest form of security, the people should not hesitate to come forward with their savings and purchase National Saving Certificate”.

Scope of National Saving Certificate

The main objective of National Saving Certificate to ensure small savings on one hand and income tax savings on the other hand. The tenure can either be of ten years or for five years. The NCS is protected by the government and is absolutely safe. NSC can be purchased at any post office and can be easily transferred from one post office to another. The National Saving Certificates can also be used to obtain loans depending upon the lending institution. Furthermore, the National Saving Certificates can also be used as a steady source of income upon maturity.

Types of National Saving Certificates

• Single Holder Type Certificate: -This certificate can be purchased only by an individual and can be held by only one individual. The certificate holder can select a nominee for himself or herself and only he or she can decide on this matter and no one else. This certificate can also be purchased for an individual or by a minor on behalf of an adult.
• Joint ‘A’ type certificate: -Such kind of certificates is purchased by two individuals and the money is payable to both upon maturity. Further, the permission of both the certificate holder is required in case of the change in nominee or transfer is required.
• Joint ‘B’ type certificate: -This is same as the type ‘A’ certificate except that the amount payable at the time of maturity is paid to only one of the certificate holder.

Features of National Saving Certificates

• It can be bought by an individual or jointly by two individuals
• These certificates can be bought only by an Indian citizen. Moreover, Hindu Undivided families are not eligible to buy such a certificate
• There is no limit on the amount money a person can invest in an NSC.
• A NSC can also be bought by an Adult on behalf of a minor
• Unlike other saving schemes the minimum investment on NSC is Rs100.Moreover, it can be purchased in the following denomination Rs 100, Rs 1000, Rs 5000, Rs 10000 and so on in multiples of 100.
• Premature encashment is possible only with the death of the account holder
• On maturity, an individual can cash in their certificate in the post office where they are issued or if they have the sufficient document to prove that certificates belong to them then they can proceed to any post office

NSC Issues

There are currently two issues of NSC in action. They are also called NSC certificates. Both have the same properties barring few. The detailed reference of both the certificates are: –

NSC ISSUE VIII: -They are available for everyone except for Hindu Undivided family. These certificates ranges from Rs 100 to Rs 10000.The maturity period of these certificate is 5 years and thus the interest rate provided by these certificates are also lower than the interest rate provided by issue IX certificates. None the less these certificates are safe as they are backed by the government and provides good returns in investment.

NSC ISSUE IX: -These issues can also be bought in denomination between Rs100 to Rs 10000.The maturity period of these certificates is 5 years and thus the current interest rate is 7.9%

Benefits of Investing in NSC

NSC are saving bonds that ensure guaranteed benefits on investment. Some of the benefits include: –

1. Tax benefits: – The tax benefits related with NSC is provided in section 80C of the Income Tax Act. The money that a person invest in NSC is tax deductible. A person can avail up to 1.5 lakhs tax benefits. This means that a person can invest up to 1.5 lakhs on NSC. Moreover, interest earned during the tenure of NSC is also not taxable except last year.
2. Interest benefits: -The NSC interest rate is decided by the government. The interest is related with the 10 year NSC bond. This means that the interest does not change within 5 years. The interest rate gets compounded half yearly but it gets added only once a year. The interest rate on NSC is not fixed and keep on fluctuating. The current Interest Rate is 7.9%
3. Investment in NSC: -Another benefit of investing in NSC is the maximum and the minimum investment for NSC. The minimum investment to an NSC certificate in Rs 100. It is easily accessible and can be purchased at any post office. The investment should be made in the following denomination-100,500,1000,5000,10000 and so on, there is no bar.
4. Loan on NSC: -An individual can take a personal loan against NSC. This can be done by taking out the certificate from the post office and apply the same for a loan in any nationalized bank. Especially in a bank where you have your saving account. After getting approval from the bank, the person should take the certificate to the post office again where the postmaster will write about the pledge on top of the certificate. Once the pledge certificate is received by the bank, the bank will disburse the loan. The interest on such loan is less than a personal loan without security.
5. NSC for Minors: – An individual can purchase an NSC certificate on behalf of a minor. For this, a person will have to purchase a single holder type certificate. In such a case the individual will have to mention as to which individual the benefits would be paid on behalf of the minor.

NSC Forms

The NSC forms are basically formalities which a person requires to fill so as to inform the concerned authorities about his or her details, details of the nominees, details of the investment etc.

There are 3 types of NSC forms: –

• Form 1 (Application form): -This application is to filled while purchasing a NSC certificate. There are two pages and the person is required to fill only the first page. In this page the person required to provide his or her details like the amount the person wish to invest, name or the minors name, names of the nominees etc. At the bottom of the page the person is required to provide his or her signature along with the signature of the nominee.
• Form 2 (Nomination Form) :-In case a person did give the details of the nominees while filling the application form then he or she will have to fill this form. This form will comprise of the details of the nominee like name, date of birth, address, occupation etc. In case the nominee/nominees are minors then the details of the person who will be responsible for the minors should be provided. Finally, the person needs to fill in the details of the certificate for which he is selecting the nominees.
• Form 3 (Change in nominee form) :-In case a holder wants to change the nominee to his certificates then he or she needs to fill this form. Here the holder will have to provide the information about the new nominee. Here again he will have to provide his or her signature as well as the signature of his or her witness

NSC Redemption

After completion of its maturity I.e.; after completing 5 years a person can seek for redemption for his or her NSC certificates. For this, a person is required to submit the certificates to the concerned post office. After this, the person is required to write on the back of the certificate that he or she has received the maturity amount.

The NSC maturity amount will be paid by cheque. The process may take up to one week to complete. This is because the cheques are issued by the main office and the local office takes a lot of time in the process.

NSC Transfer

NSC can be transferred from one post office to another depending on whether a person has all the necessary documents to prove that the certificates belong to him or her. Furthermore, a NSC certificate can also be transferred from one person to another. The following steps should be kept in mind while applying for a transfer: –

• For transferring NSC from one post office to another: -There may a number of circumstances when a person might want to transfer his or her NSC from one post office to another. In such a situation a person just needs to submit an application either to the old or new post office requesting a transfer. In case the NSC is jointly held, the application must be signed by both the holders
• Transfer from one person to another: -If a person wants to change the name of the account holder then he or she needs to get written consent from the postmaster of the post office where he or she purchased the certificate.

Premature withdrawal of NSC

Premature withdrawals can take place only in case of death of the holder, pledge or due to an order by a court of law.

The amount a person gets depends on the following conditions: –

• If the certificates are not less than one year than only the purchasing amount will be paid and not the interest
• The interest payable is simple interest if the time of purchasing the certificate is between 1 year and 3 years.

Nominating a Beneficiary for National Saving Certificates

Nomination means selecting the person who will be held responsible of your NSC in case any misfortune takes place like the death of the holder. In case the certificate jointly held by two people and one of the holder dies then the other can look after it however in case all the account holder dies then NSC value will be sent to the nominee. Things to remember while selecting a nominee: –

• If Holder does not select any nominee than the NSC value will be sent to their legal heirs.
• If the certificate is taken on behalf of a minor then no nominees are required
• In case the NSC value is Rs 500 then the only one person can be nominated
• When an illiterate person is nominated for NSC, then he or she will have to provide his or her thumb print in front of witness known to the post office.
• A minor can be selected as a nominee but in that case, an adult will also have to be nominated who will get the benefits of the NSC on behalf of the minor
• In the case of any changes in the nominations a person will have to fill form 3.

Duplicate NSC Certificates

On a number of circumstances, a person might want a duplicate NSC certificate. For example, when he or she loses it or when it got destroyed for some reason. While applying for a duplicate NSC certificate the following things should be kept in mind: –

• For a duplicate NSC certificate, a person will have to visit the post office where he or she got the NSC certificates
• In case the post office is closed then the person can go to any post office and submit their application which will then be sent to their appropriate post office
• The application for a duplicate NCS certificate should comprise of all the necessary details like name and number of certificates, dates as to when it was purchased and for what amount
• The reason for a duplicate certificate should also be mentioned
• An indemnity bond will be required in case the value of the certificate is more than Rs 500.In such a case an applicant can either provide the necessary documents or a guarantee from the bank
• In case a person wants a duplicate certificate due to destruction like defacing of the original certificate then an indemnity bond is not required. In such a case a person will have to show his or her original certificates
• Even though the application for a duplicate NSC certificate can be issued in any post office, it can only be collected from the original post office.

Cost and Charges in NSC

In the case of any issuance like applying for a duplicate NSC, transfer of the certificate from one person to another, encashment of certificate, change in the denomination of the certificate, change in nomination or nomination made after the purchase of the NSC then the holder will have to pay Rs 5 as a fee.

How to Buy a National Saving Certificate

An NSC certificate can only be bought from a post office and online provisions to buy NSC is not available. This is because a person is required to submit documents while applying for NSC. The following steps should be kept in mind while applying for NSC: –

• Firstly, a person is required to fill up the application form giving his or her details and how much investment they want to make
• Necessary documents should be provided
• Select the nominee for the NSC certificate
• The investment can pay either by cash, cheque or demand draft
• After successfully applying a person needs to collect the certificate back from the post office. It must be noted that when the certificate is purchased via cheque then the documents will not be returned until and unless the amount is paid.

DOCUMENTS REQUIRED: The documents required while applying for NSC documents assuring the personal identity, address. A person is also required to fill form 1 stating the amount that he or she is investing and their nominees.

NSC vs Other Investment Schemes

Besides NSC there are a number of other savings and investment schemes like PPF account, mutual fund, life insurance, and a comparison between all is important to understand their features and significance.

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