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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:
- 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.
- 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.
- Process
Once you have submitted the form, the post office will investigate and verify your application.
- Fees
The post office may charge some nominal amount for executing and release of the pledge as applicable
- 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.
National Savings Certificate (NSC) Tax Benefits
National Savings Certificate which is also known as NSC is a savings Bond which is designed for salaried employees and businessmen for small savings and income tax savings investment in India.
National Savings Certificate 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.
Government of India have fixed the NSC interest rate which is subject to revision on yearly basis which is at the start of every financial year i.e. 1st April. The current NSC rates are for NSC VIII Issue which matures after 5 years is 8.50% compounded half yearly and NSC IX which matures after 10 years is 8.80% compounded half yearly.
This provides dual benefits to the subscribers as one can reinvest the earned interest and claim this amount as deductions under Section 80C. In case you do not reinvest this amount in NSC after maturity, the deposit will be start earning taxable interest at simple interest rates, reducing the scope for accruing interest.
Interest on premature withdrawal of NSCs
National Savings Certificate can be withdrawn prematurely only on some special cases which are
- In case of death of the certificate holder or the holders
- Forfeiture of a pledge being a Gazetted government officer when pledge conforms to the rules
- On court order.
National Savings Certificate Tax Benefits
National Savings Certificate offers various tax benefits. In this section we will discuss the tax benefits available under National Savings Certificate.
- As under NSC, the certificate holders will not get paid directly in their accounts and it can be reinvested, a taxpayer/investor can claim for tax deduction on the interest amount. For that they need to show the interest as income and then claim income tax rebate on it under Section 80C of the Indian Income Tax Act.
- Under National Savings Certificate (NSC), a yearly investment up to Rs. 1,00,000 qualifies for income tax repayment
- Under National Savings Certificate, there is no tax deduction at source.
How to calculate National Savings Certificate Tax
To calculate National Savings Certificate tax you are required to enter your date of purchase of NSC, total NSC amount, total years of completion after purchase and the applicable rate of interest, and the calculator will reveal the total interest. And based on the results you can claim your income tax rebate.
Key Benefits of investing in NSCs
NSC is one of the safest schemes as it is backed by the government of India (GoI). It also comes with a lot of benefits which are as follows:
- Under NSC one can receive interest up to 8.8% which is indeed an attractive rate of interest on savings.
- If you invest in NSC, after 5 to 10 years once the scheme matures, you will receive assured returns on it
- NSC is one of the most reasonable investment as one can invest as minimum as Rs. 100.
- NSC makes getting loans easier as by showing your NSC certificate you can get easy loans from the bank.
- National Savings Certificates are issued in different denominations such as Rs. 100, Rs.500, Rs.1000, Rs. 5000 and Rs.10, 000. A person is free to purchase any number of National Savings Certificates as per his/her convenience
- This scheme is considered to be very flexible as the investors can transform their National Savings Certificate from one individual to the other, if they certificate holder intends to transfer their certificate.
PPF account will be closed in case of change of status to NRI
A new notification has been issued by the Government of India (GoI) stating that if the holder of the PPF (Public Provident Fund) account becomes NRI (Non – residence of India) would be closed without the account reaching its maturity period.
This notice was issued earlier this month in the official gazette which states the above mentioned information.
The amendment to the PPF Scheme, 1968, says:
This decision has been taken as according to the rules of PPF, NRIs are not permitted to invest in schemes like the National Savings Certificate (NSC), Public Provident Fund (PPF), and Monthly Income Schemes and other time deposits offered by the post office.
The Public Provident Fund (PPF) scheme, is a tax free savings scheme introduced by the Ministry of Finance (MoF) and it was launched in order to encourage savings habit among the Indians and create a retirement corpus.
PPF is a long term savings and tax savings instrument in India, and is administered by the provisions of Public Provident Fund Act 1968. Deposits made towards the PPF account is eligible for deduction under Income Tax Act and the interest earned on it is exempted from tax.
There are other eligibility criteria’s of this for say, this scheme is only for Residents of India who are above 18 years of age or above than that as there is no upper age limit to open an account in PPF. Also, HUF (Hindu Undivided Families) or NRIs (Non – Resident of India) or Foreigners are excluded from the scheme.
Investing in PPF is one of the best investment options as it acts as a good option for a long term investment scheme. The maturity period is 15 years and minimum lock – in period is 7 years. Moreover, the interest rate also gets annually compounded. It is also one of the most tax efficient, affordable and the most popular retirement scheme in India. Not is the interest rate tax – free but the withdrawals are also taxed deductible.
Comparing PPF, NSC, Sukanya Samridhi & Senior Citizens Saving Scheme
Savings and investments are two most important concepts in the Financial Industry.
Investment basically means that “any money that is spent today in the hope of financial benefits that may be reaped in a future time frame”. In other words investment is an asset that is purchased with the hope that it will generate income in the future.
There are different instruments of investment and every instrument has specific features and one should choose their investment instrument according to their need.
Below is the list of some of the most popular small savings scheme
PPF (Public Provident Fund)
PPF (Public Provident Fund) is a long term savings and tax savings instrument in India, introduced by the government in 1968. PPF scheme is administered by the provisions of Public Provident Fund Act 1968. Deposits made towards the PPF account is eligible for deduction under Income Tax Act and the interest earned on it is exempted from tax.
Features of Public Provident Fund (PPF)
Interest Rates – 7.8%
Tenure – 15 years
Initial Investment / Deposit – Rs. 100
Annual Deposit Amount – Rs. 500 – Rs. 1.5 lakhs per year
Deposit Frequency – every year for 15 years
Deposit Modes – Via cash, cheque, DD, online funds transfer
Nomination – Allowed
Loan Facility – From Year 3 to year 6
Renewal – Allowed, for an extra 5 years at a time
Withdrawals – Every year from year 7. Also complete withdrawal of funds can be made only at maturity.
Benefits of investing in a PPF scheme
In PPF the deposit period is of 15 years and a lock – in period is of 7 years which means this scheme serves as a long term investment goal. Investing in PPF is an ideal option for building a retirement corpus as it serves as a long term investment, tax returns and capital protection. PPF is one of the most low risk investment schemes as it is backed by the government itself.
Public Provident Fund (PPF) is governed by the Public Provident Fund Scheme 1968 and it scrutinizes over the eligibility criteria, documentation requirement, opening, maintenance and operation of a PPF account including loan facilities, withdrawals, closure, and extension of accounts among other things.
Eligibility Criteria
Enrolling into PPF scheme is open to Indian Residents only who are of 18 years or above than that as there is no upper age limit to open an account in PPF. Also, HUF (Hindu Undivided Families) or NRIs (Non – Resident of India) or Foreigners are excluded from the scheme.
NSC (National Savings Certificate)
National Savings Certificate is an Indian Government savings bond which is meant for small savings and income tax savings investments in India. Under this scheme interested people can invest their money and will receive a certificate in turn, containing the particulars of their investments. This scheme is considered to be one of the safest investment options. The money you invest in NSC is safe and you receive interest on your investment. Maturity period of NSC is 5 years. In order to invest in NSC, you can visit your nearest post office and enrol in it. This scheme also offers the facility to transfer your investment from one post office branch to another. It also provides nomination facility, after your death.
Features of National Savings Certificate (NSC)
This scheme has a variety of attractive features such as it can be purchased from any post office in India. If any subscriber wants to have a joint account, they can open a joint account as well. The minimum amount of investment in NSC is Rs. 100 and there is no limitation on maximum investment, i.e. any individual can investment any amount they like. However, income tax benefit will be available only up to Rs. 1.5 lakhs. The NSC certificate is available in the denomination such as Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, and Rs. 10,000. Under this scheme the subscribers are allowed to avail loans as well.
Benefits of investing in a NSC Scheme
There are multiple benefits of purchasing National Savings Certificate (NSC) such as the interest can be tax free except for the interest that is earned in the last year. Investments made in an NSC come under 80 C of the IT ACT and afford the investor tax benefit. Also, NSC is a one time investment scheme where the minimum investment amount is Rs. 100 which is a very nominal, hence, it is within the reach of common man and anyone can buy this scheme. NSC also works as a guarantee certificate and it also carries a lower rate of interest as compared to personal loans. In case you misplace your NSC certificate; you can get a duplicate one as well.
Sukanya Samridhi Yojana (SSY)
Sukanya Samridhi Yojana is a popular government schemes launched by the Prime Minister, Shri Narender Modi, which targeted at the parents of a girl child for their betterment. This scheme would encourage the parents to build a fund for the future education and other needs and expenses of their female child. This scheme has managed to reach a wider audience in the country as it is a great step towards providing financial security and financial independence to women.
Benefits of Sukanya Samridhi Yojana
According to the financial experts, availing this scheme would provide great benefits to the subscribers as it offers attractive rate of interest of 8.6% per annum which is more than that offered by most other schemes in the market. However, this rate if revised every year by the Finance Minister. An investment made under this scheme is also exempted from income tax under section 80 C of the Income Tax Act, 1961. Under Sukanya Samridhi Scheme, partial withdrawal is allowed on account of marriage or higher studies, once the girl child attains the age of 18 years of age. This scheme is meant for a girl child who is 10 years or old. And the account can be opened by the parents or guardian of the girl child and can be operated on her behalf until she reaches the age of 18 years. The scheme will mature after 21 years from the date of opening the account. The maximum amount that can be deposited in this account is Rs. 1, 50,000.
Senior Citizens Savings Scheme (SCSS)
In every society, senior citizens are always given the special place and consider them as the head of the family. In India, any people who have attained the age of sixty years or above are considered as senior citizens.
And in order to acknowledge their contributions and help them retiring gracefully, Government of India honours them by offering them wide range of attractive programs and facilities. The Senior Citizen Savings Scheme (SCSS) is one of them.
Senior citizen savings scheme boast of one of the best interest rates for any government sponsored investment product in India. As it is designed for the senior citizens, the procedure of applying for it kept extremely simple. To avail Senior citizen savings scheme fill up a simple application form at your local bank or post office and that’s the procedure. This scheme comes with all the security and assurance as it is backed by the Government of India. Under SCSS, a single applicant can open multiple SCCC account either individually or with joint investors. Also Senior Citizens Savings Account offers attractive returns i.e. 8.6% per annum. SCCC matures in 5 years but can be stretched for another 3 years, hence; it can be treated as a long term and both medium term investment schemes.
| Features | Public Provident Fund (PPF) | NSC (National Savings Scheme) | Sukanya Samridhi | Senior Citizens |
| Interest Rates | 7.8% | 7.8% | 8.3% | 8.3% |
| Tenure | 15 years | 5 years | 14 years | 5 years |
| Risk factor | Risk – free | Risk – free | Risk – free | Re – investment risk |
| Account Opening | Anyone | Anyone | Only guardian who have girl child | Senior Citizens |
| Where to open | Post Office / Bank | Post Office | Post office / bank branch | Post office |
NSC and KVP Certificate Online
Government of India have decide to go digital in issuing NSC (National Savings Certificate) and KVP (Kisan Vikas Patra), which are very popular savings schemes in India.
NSC (National Savings Certificate) is a good saving scheme for low risk appetite investors, which is provided by the India Government through Post offices. And it usually has a maturity period of five to ten years. It is also eligible for tax deduction under Section 80 C. The rate of interest offered on NSC is 8.1%.
KVP (Kisan Vikas Patra) is also a risk free investment scheme which gives a stable income. Under this scheme money doubles in 100 months and interest is compounded annually. This scheme is provided by the Indian Government through post office. Kisan Vikas Patra does not offer any income tax benefits to the investors. However, withdrawals are exempted from Tax Deduction at Source (TDS) upon maturity. The rate of interest offered on KVP is 7.8%.
Earlier both KVP and NSC were issued in the form of pre – printed physical certificates. However, pre – printed physical certificate have been discontinued by the government from July 2016.
Instead of pre – printed NSC and KVP certificate, the certificates will be recorded in two modes i.e. e – mode (electronic mode) or in Passbook mode.
How to buy NSC and KVP Certificates in Electronic mode (e – mode)
Follow the below mention guidelines in order to opt for the certificates in electronic form
You can easily buy KVP and NSC certificate in e – mode if you have a savings bank account with bank / post office.
You are required to have secured internet banking. In case you don’t have a savings account or internet banking, you will have to apply for the both before the purchase of NSC and KVP.
In NSC (National Savings Scheme), the minimum amount you can invest is Rs. 1,000.
In KVP (Kisan Vikas Patra), the minimum amount you can invest is Rs. 100.
NSC and KVP Certificate in Passbook Mode
If you don’t want to purchase the certificates in electronic mode, you can opt for Passbook Mode i.e. you can buy NSC and KVP and the same will be recorded in Passbook manually. Where the official would authorize the passbook with physical signature (in blue ink).
In case a customer wants to shift the mode from Passbook to electronics, he would require submitting his passbook at the post office, where the officials would destroy the passbook after cancelling the pages.
In case you lose your physical NSC and KVP certificate, passbook will be given in lieu of pre-printed NSC or KVP. The old certificate number may be noted in this case, on the passbook issued.
Transfer of KVP/NSC certificates from one post office to another and from one bank branch to another shall continue as per the existing rules and guidelines.
Also, once you have purchased KVP and NSC, it cannot be transferred.
Closure or Pre mature Closure Procedure of KVP and NSC
During the closure, the passbook should be given to the officials and the issued amount will be obtained in the passbook. The officials would cancel all the pages by drawing in red lines followed by dated signatures of authorized official with designation stamp. After that passbook will be torn and preserved as a closed voucher.
List of banks offering KVP and NSC in Electronics and Passbook mode
- Andhra Bank
- Axis Bank
- Bank of Baroda
- Bank of India
- Canara Bank
- Central Bank of India
- Corporation Bank
- Dena Bank
- HDFC Bank
- ICICI Bank
- IDBI Bank
- Indian Bank
- Indian Overseas Bank
- Punjab national Bank
- State Bank of India
- State Bank of Bikaner and Jaipur
- State Bank of Indore
- State Bank of Mysore
- State Bank of Patiala
- State Bank of Saurashtra
- State Bank of Travancore
- Syndicate Bank
- UCO Bank
- Union Bank of India
- Vijaya Bank
Recently, government has decided to cut down interest rates on small savings scheme which also includes NSC (National Savings Certificate) and KVP (Kisan Vikas Patra) by 0.2 percentage points for the January – March quarter. This move has been taken to prompt the banks to lower the deposit rates.