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National Savings Certificates (NSC) are an assured return scheme, armed with powerful tax rebates under Section 88 of the Income Tax Act, 1961. Interest is payable at 9.5 per cent, compounded half-yearly for a duration of 6 years.
INVESTMENT OBJECTIVES
How suitable are NSCs for an increase in my investment?
NSC combines growth in money with reductions in tax liability as per the provisions of the Income Tax Act, 1961. The scheme offers a coupon of 9.5 per cent, compounded semi-annually. So, Rs 1,000 invested in NSCs become Rs 1,745.20 on maturity after 6 years.
Are NSCs suitable for regular income?
No, NSCs are not meant to provide a regular income flow. They are an instrument for facilitating long-term savings.
To what extent does the NSC protect me against inflation?
With a fixed rate of return, the NSC cannot provide adequate safeguards against the risk of a high inflation rate.
Can I borrow against NSC?
Yes, you can borrow against your NSC by pledging it after the permission of the concerned post-master.
You can pledge your NSC to any of the following:
· The President of India or Governor of a State in his official capacity.
· The RBI or a scheduled bank or a co-operative society (including a co-operative bank).
· A corporation or a government company.
· A local authority
· A Housing Finance Company approved by the National Housing Bank and notified by the Central Government.
RISK CONSIDERATIONS
How assured can I be of getting my full investment back?
The NSC has the backing of the Government of India. Therefore, your investment is assured.
How assured is my income?
Since the NSC has the backing of the Government of India, your income at the prescribed rate of interest is assured. This is a safe long-term savings option.
Are there any risks unique to NSC?
No, there are no risks associated with your investment in the NSC. As mentioned, the NSC Scheme is backed by the Government of India, and, thus, is completely risk-free.
NSC is, essentially, a tax-saving scheme. Economic factors do not affect investment decisions as far as the NSC is concerned.
Is the NSC rated for credit quality?
No, the NSC does not require a commercial rating.
BUYING, SELLING, AND HOLDING
How do I buy National Savings Schemes?
NSC application forms are available at all post-offices. The application can be made either in person or through an agent of small savings schemes. The following types of certificates are issued:
(1) Single Holder Type Certificate:
This can be issued to:
i) An adult for himself or on behalf of a minor.
ii) A Trust.
(2) Joint 'A' Type Certificate: This may be issued jointly to two adults payable to both holders jointly or to the survivor.
(3) Joint 'B' Type Certificate: This may be issued jointly to two adults payable to either of the holders or to the survivor.
Payment for purchase of NSC can be made by either of the following:
(a) Cash
(b) Cheque, pay order, or demand draft drawn in favour of the post-master
(c) Surrender of a matured old certificate duly discharged
(d) Presenting a duly signed withdrawal form or cheque, together with the pass-book for withdrawal from the post-office savings account standing at the credit of the purchase at the same post office.
What is the minimum investment and range of investment in NSC?
NSCs are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. There is no prescribed upper limit on investment in NSCs.
What is the duration of the NSC Scheme?
The maturity period (duration) of a NSC scheme is 6 years.
Can NSCs be sold in the secondary market?
No, NSCs cannot be traded in the secondary market. But they can be transferred from one person to another through the post office on payment of a prescribed fee.
What Is The Liquidity Of National Savings Certificates?
NSCs do not offer any scope of premature withdrawal except on death or forfeiture by pledgee or by court order. However, NSCs can be transferred from one person to another through the post office on the payment of a prescribed fee. They can also be transferred from one post office to another. If a certificate is lost, destroyed, stolen or mutilated, a duplicate can be issued by the post-office on payment of the prescribed fee.
How Is The Market Value Of NSCs Determined?
As mentioned earlier, there is no secondary market for NSCs. Therefore, the question of market value of NSCs does not arise.
What is the mode of holding of NSCs?
NSCs are held physically in the form of Certificates issued to the investors by the post office.
TAX IMPLICATIONS
NSCs offer tax benefits as per the provisions of the Income Tax Act, 1961. Rebates are available under Section 88 of the Income Tax Act, 1961 on both the principal as well as the interest income. Under the provisions of this Section, an investor can reduce his tax liability by Rs 12,000 by investing the maximum permissible sum of Rs 60,000 in one financial year.
Moreover, the annual interest income (till five years) is deemed reinvested under Section 88, and is eligible for a 20 per cent tax rebate. The rebate is calculated @ 30 per cent if your gross annual salary is upto Rs 1,00,000. However, the interest income at the end of the sixth year is not eligible for tax breaks. The interest income every year also qualifies for exemption under Section 80L of the Income Tax Act, which means that interest income upto Rs 9,000 is tax-exempt. Thus, while you can claim 20 per cent tax rebate on reinvested interest income, the entire interest income will be tax-free if it is lower than Rs 9,000. An added advantage is that TDS (Tax Deductible at Source) is not applicable on the NSC.
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