What is the National Savings Scheme (NSC)?
National Savings Scheme (NSC) is a small savings scheme run by the Department of Posts. NSC is a government scheme, and thus it is a very safe investment option.
National Savings Scheme in Detail
NSCs are available in the value of ₹100, ₹500, ₹5,000, and ₹10,000. There's no upper limit of investment, so you can purchase as many certificates as you want. You can invest in NSC through any local post office.
Types of NSCs
NSCs used to be available for two durations - 5 years (NSC VIII Issue) and 10 years (NSC IX Issue). For both durations, there were three different types of NSC certificates. The 10 year National Savings Certificate is no longer available though we leave the examples in place here so those who purched 10 year NSC's before they were phased out can reference the NSC calculations. The 5 year National Savings Certificate Scheme still operates in the same way as before with three separate savings certificates types available:
- Single Holder Type Certificate can be taken by individuals either in their own name or the name of a minor.
- Joint A Type Certificate can be taken by two adults who are joint holders of the certificate, and the withdrawal amount will be paid to both of them jointly.
- Joint B Type Certificate is available for two adults who are joint holders, and the withdrawal amount can be paid to either one of them.
How much interest do you get on NSC?
Every year in April, the government sets the interest rate for NSC. Presently, the interest rate for 5 years is 8.5 per cent, and the interest rate for 10 years was 8.8 per cent. Note that the interest rate will be fixed for the entire term of the investment. This is different from PPF, where the interest rate changes every year. Based on the applicable interest rate, you will be assured a fixed amount upon maturity.
Example 1: You purchased a 10-year NSC of ₹10,000 in 2014 at an interest rate of 8.8 per cent. For the next 10 years, you will get interest at the same rate of 8.8 per cent. Your NSC will also mention a maturity amount of ₹23,435, which has been calculated using the rate of 8.8 per cent. Your withdrawal amount will not change, even if NSC reduces the interest rate next year.
NSCs don't allow premature withdrawals. Once the 5-year or 10-year term is over, you need to submit the NSCs back to the post office to get the original investment along with interest. As an exception, if the holder of NSCs dies, the nominees can withdraw NSCs before the completion of the term.
Tax treatment of NSC
NSC is a tax-friendly product. In a year, you can deduct up to ₹150,000 of NSC investments from your taxable income. The interest earned from NSC is taxable, however, every year the interest from NSC is reinvested back into the scheme. This way, you don't pay any taxes on the interest earned on NSC, except for the interest earned in the last year.
Use our tax calculator to check how NSC investments affect your taxes.
How to calculate the value and tax deduction on NSC
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