National Saving Certificate (NSC) is a government bond and a popular short-term investment scheme for safe players. You can not only keep your money safe, but you also earn better returns as compared to fixed deposits, the most popular saving instrument in India.
You can invest for 5 years in NSCs. However, earlier there were two types of NSCs;
- VIII-Issue (5 years tenure)
- IX-Issue (10 years tenure)
IX-issue had better interest rates with a double lock-in period but the government has discontinued the IX-Issue NSC from 20 December 2015. So, now you can invest only for 5 years. You can apply for an NSC in any post office of the country.
If we talk about National Savings Certificates’ interest rates, they are on the decline since 2018.
The government has recently slashed interest rates on small saving schemes and the NSC couldn’t remain untouched. Interest rate on NSC for the financial year has been cut by 110 bps .
Let’s have a look at the current interest rates of small savings schemes.
Current NSC Interest Rate 2020
National Savings Certificate (NSC) now offers an interest rate of 6.8%, 110 bps less than earlier 7.9%. Interest is calculated annually against the invested/ accrued amount.
NSC Interest Rate Chart
I have curated a list of the last 5 years of NSC interest rates. If you compare the past interest rates with the present ones, you will find that currently, the offered rate of interest is at the all-time low.
Let’s have a look at interest rates starting from 2015 till now.
|01-Apr-2015 to 31-Mar-2016||8.5%|
|01-Apr-2016 to 30-Sep-2016||8.1%|
|01-Oct-2016 to 31-Mar-2017||7.6%|
|01-Apr-2017 to 31-Mar-2018||7.6%|
|01-Apr- 2018 to 30-June-2018||7.6%|
|01-Jul-2018 to 30-Sep-2018||7.6%|
|01-Oct-2018 to 31-Dec-2018||8.0%|
|01-Jan-2019 to 31-Mar-2019||8.0%|
|01-Apr- 2019 to 30-June-2019||8.0%|
|01-Jul-2019 to 30-Sep-2019||7.9%|
|01-Oct-2019 to 31-Dec-2019||7.9%|
|01-Jan-2020 to 31-Mar-2020||6.8%|
How to Calculate NSC Interest Rate
You can use this formula (given below) to calculate the NSC maturity amount in a few seconds.
NSC Interest Calculation Formula
M = P * (1 + r) ^ n
M = Maturity Amount
P = Principal Amount
R = Rate of Interest
N = No. of Years
To understand this formula, let’s assume that you have bought NSC worth Rs 1 Lakh at 8% interest (for easy calculation) for 5 years. Let’s calculate the maturity amount.
M = 1,00,000 * (1 + 8%)^5 = 1,00,000 * 1.4693280 = Rs 1,46,932.80
Interest earned = Rs. 46, 932.80
Simple, isn’t it?
Tax Benefit of NSC Investment
You can avail of a tax rebate up to Rs. 1,50,000 by investing in NSC under sec 80c of Income Tax Act, 1961.
The interest that you will earn on the invested money will also come under tax rebate until it is paid to the account holder.
In simple words, if you have invested Rs. 1 lakh in NSC for 5 years, the interest earned till 4 years will come under tax rebate while completing the 5 years when the whole amount will be credited to your account, it will become taxable income and interest earned in the 5th year will also be taxable.
Comparing NSC Interest Rate with other Tax- Saving Investments
You can compare the most popular tax investment instruments with NSC. I have considered 3 parameters here-
- Interest Rate
- Lock-in Period
- Risk Profile
|Investment||Interest||Lock-in Period||Risk Profile|
|NSC||6.8%||5 years||Low-risk, Fixed return|
|PPF||7.1%||15 years||Low-risk, Fixed return|
|Fixed Deposits||7% to 9%||5 years||Low-risk, Fixed return|
|NPS||8% to 10%||Till retirement||Medium risk, Flexible returns|
|ELSS funds||12% to 15%||3 years||Medium risk, Flexible returns|
#1. Is NSC Interest Taxable?
NSC’s interest is taxable on maturity only.
The NSC interest is not taxable until it is paid to the certificate holder that means you can avail benefits of tax exemptions on the interest earned every year till the maturity year.
On maturity of your NSC you have to pay tax on the interest earned in that year only. So, you can take benefits of the tax deduction for the 4 years and have to pay taxes on the interest earned in the 5th year.
NSC is still better than a fixed deposit if you can lock-in your money for 5 years because on FD, the interest comes under TDS.
#2. What Are the Minimum And Maximum Investment Limits in NSC?
You can buy an NSC with a minimum amount of Rs. 100.
On the other hand, there’s no limit on the maximum investment. You can invest as per your investment goals without worrying about the upper limit.
#3. What Are the Different Types of Holdings in NSC?
There are three types of holdings in NSC – Single holder, Joint ‘A’ and Joint ‘B’.
- Single Holder – An individual can buy NSC as a single holder and certificates are issued to that person only.
- Joint ‘A’ type – Two adults can buy the NSC jointly. Certificates are issued in the name of both applicants. Signatures of both applicants are required to avail any service like receiving maturity amount or to change the nominee. The maturity amount is payable to both.
- Joint ‘B’ type – Similar to Joint ‘A’, Joint ‘B’ type certificates are issued in the name of both joint holders but the maturity amount is payable to either of the account holders.
#4. Can I Withdraw the NSC Certificate Before Maturity?
No. You can’t withdraw NSC prematurely except under special circumstances. These special circumstances are as below.
- On the demise of the certificate holder
- On judicial court’s order to do so
- Non-payment of loan against NSC
Considering the above cases, if the premature withdrawal is done within 1 year from the date of issuance, only the principal amount is paid to the certificate holder.
If the premature withdrawal is made between 1 year to 3 years, post office savings account interest rate is applicable.
As per a recent notification of the government, if the account is prematurely closed after the expiry of three years from the date of the opening, the amount payable will be as specified in the following table.
(In the below table, Rs. 1000 is considered as the invested amount)
Let’s calculate how much you would get if you have invested Rs. 1 lakh as per the above mentioned guidelines.
#1. Above 3 years, but less than 3 years and 6 months
Encashment amount – Rs 1,22,161
#2. Above 3 years and 6 months, but less than 4 years
Encashment amount – Rs 126,305
#3. Above 4 years, but less than 4 years and 6 months
Encashment amount – Rs 1,30,590
#4. Above 4 years and 6 months, but less than 5 years
Encashment amount – Rs 1,35,020 on deposit of Rs. 1 lakh.
#5. Can I Take a Loan Against NSC?
Yes. This is another benefit of investing in NSC. You can take a loan by giving NSC as collateral to the bank.
Along with that, you get a loan at cheaper interest rates as compared to the personal loan interest rates.
Banks can approve loans up to 90% of the NSC value (varies from bank to bank).
NSCs are a safer bet for people who don’t wanna put their money in risk. However, with revised interest rates, NSC is no more a wealth-generating instrument.
So, it is better to diversify your money rather than putting in only one type of investment. Share your thoughts in the comments.