The ‘National Savings Certificate’ (NSC) scheme of the Indian Postal Department has always been the first choice for middle class investors seeking safe and assured returns. In this scheme supported by the Finance Ministry of the Government of India, every single rupee of the investor is completely safe. Away from the ups and downs of the stock market, this scheme currently 7.7 percent Compounded Annually interest is being given, which is paid in lump sum on maturity of 5 years.
The biggest feature of this scheme is its flexibility. In this, investment can be started with a minimum of ₹ 1,000 and there is no upper limit on the maximum investment. Common citizens can deposit as much amount as they want in multiples of ₹1,000 as per their convenience.
This question arises in the minds of many investors that how does this scheme, which starts from ₹ 1,000, generate interest up to ₹ 6.73 lakh. NSC interest compounds on compound basis:
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Compound formula: $A = P \times (1 + r/100)^t$ (where $P$ is the principal, $r = 7.7\%$ interest and $t = 5$ years).
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On lump sum investment of ₹15 lakh:
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Principal: ₹15,00,000
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Total maturity amount after 5 years: ₹21,73,552
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Earning from net interest only: ₹6,73,552 (approximately ₹6.73 lakh)
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Returns on other investment amounts:
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On deposit of ₹1,000: Get ₹1,449 after 5 years (Interest: ₹449).
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On depositing ₹1 lakh: After 5 years you get ₹ 1,44,903 (Interest: ₹ 44,903).
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On deposit of ₹5 lakh: Get ₹7,24,517 after 5 years (Interest: ₹2,24,517).
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On deposit of ₹10 lakh: Get ₹ 14,49,035 after 5 years (Interest: ₹ 4,49,035).
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NSC scheme not only provides secure profits but is also a legal means of saving tax:
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Section 80C Exemption: Under Section 80C of the Income Tax Act, the benefit of tax deduction is available on the original investment of up to ₹ 1.5 lakh in a financial year.
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Deemed re-investment (tax exemption on interest): The interest on NSC does not come directly into the hands but gets reinvested in the account itself. Therefore, the interest earned for the first 4 years can be considered as ‘reinvestment’ under income tax rules and 80C exemption can be claimed on that too. Only the interest of the 5th (final) year is taxable as per the taxpayer’s slab.
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TDS not deducted: Tax at source (TDS) is not deducted when paid on maturity by the post office, which makes it more convenient than bank FDs.
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Eligibility: Any adult Indian citizen can open a single account in his/her name or a joint account with up to 3 adults. An account can also be opened by a guardian in the name of a minor above 10 years of age.
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Loan facility: In case of emergency, a cheap loan can be easily availed by mortgaging the NSC certificate with banks or financial institutions.
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Premature Withdrawal: Closing the account before the lock-in period of 5 years is permitted only in special circumstances such as death of the account holder or a court order.
To invest in NSC, you can go to your nearest post office and fill the NSC application form. It has to be accompanied by identity proof (Aadhaar card/PAN card), address proof and check or cash. Apart from this, if you have a post office savings account and internet banking is active, you can get NSC issued digitally from the comfort of your home through the ‘DoP e-Banking’ portal.