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National Saving Certificate

National Saving Certificate – a good investment option for the middle class

Every salaried class person knows about National Saving Certificates (NSC). This investment offers a healthy rate of interest as well as tax benefits under Sec 80C of the Income tax act. It is an investment instrument encouraged by the Government of India.

The Government of India started NSC to encourage the saving habits among Indians. The idea was to collect these funds and use the same for the development activities of the country. The combination of a good rate of return along with safety and tax benefits, have made NSC hugely successful.

The interest rate is subject to review from time to time, but your rate remains the same throughout the duration of your certificate. For e.g. if you would have invested at 8.5% in December 2012, then your interest rate will be constant till the maturity date, irrespective of any revised interest rates declared  at the beginning of every financial year (April 1st).

Let us understand How to invest in NSC in detail

1.Visit your local Post Office

You can invest in NSC’s by filling up a form at your local post office. You can do it personally or through an authorised agent.

2.Certificates in denominations

The minimum investment is Rs.100/- and there is no maximum limit, though you can avail a maximum tax benefit of only Rs.1.5 lakhs. The certificates are issued in denominations of Rs.100/-, Rs.500/-, Rs.1000/-, Rs.5000/- and Rs.10000/-.

3.One time Investment

This is a onetime investment and you can pay through Cash, Cheque, Demand Draft or Pay Order.

4.Physical certificate given

You will receive a physical certificate in return for the money you invest. Currently some Post Offices have started issuing these certificates in the Demat form.

5.Amount to be received on maturity

On maturity, you will receive the amount due by presenting your NSC’s at the Post Office.

6.Loss of certificates

In case of loss of certificates, you can get duplicates by providing details like the certificate number, amount and date of issue.

7.No premature withdrawals, except in the case of an emergency

NSC’s do not allow premature withdrawal except under emergency situations like death, court orders or forfeiture of loans.

Advantages of investing in NSC’s

  1. Income tax deductions under section 80C for investments upto Rs.1.5lakhs in NSC’s.
  2. It is a very easy and simple investment option.
  3. Total investment is risk free.
  4. NSC’s are transferable and can be encashed in any part of India.
  5. You can take a loan against your NSC.
  6. A good investment option for long term goals like accumulating funds for your children’s education or marriage.

Disadvantages of investing in NSC’s

  1. Lock in period of 5 to 10 years.
  2. NSC certificates are physical and have to be presented to the Post Office on maturity. In today’s fast changing technological world, people are averse to physical transactions.
  3. On the maturity date, the interest received is taxable, although it is not deducted at the time of encashment.
  4. There are two methods of tax calculation. In the first method, you spread the tax liability over the duration of the investment while in the second method you can show the entire interest as income on maturity, but this might lead to higher taxes. Wisely choose the method that suits you best.

The above are some of the key points to be taken into consideration while investing in National Saving Certificates.

(Book – What every Indian should know before investing – Vinod Pottayil)

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