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How To Learn About National Saving Certificate Better In Less Time.

Q-1 What are interest rates offered by the NSCs?

  Ans- Since there are two types of NSCs available, the interest rates are also different for each of the issues. The interest rates for NSC Issue VIII is 8.5% per annum while that for NSC Issue IX it is 8.8% per annum. The interest is calculated annually but paid out only at the time of maturity. The scheme also offers the option to reinvest the interest earned into the NSC.

Q-2 How are NSCs taxed?

 Ans- There are two ways to look at NSC investments when it comes to the matter of computing taxes. The first is the tax benefit on the investment and the second, the tax payable on the returns.

  • Tax benefits on investment:

Investments made in NSC are also eligible for income tax benefits. The benefit can be claimed under Section 80C of the IT Act. The limit for the claims is ₹1.5 lakhs in a single financial year. Although, it does not mean that you will be able to invest ₹1.5 lakhs in NSC and in other things covered by 80C and still claim tax benefits. This basically means that the sum total of your investments under 80C cannot exceed ₹1.5 lakhs for tax benefits.

Let’s take an example to understand the concept better. Suppose you have invested ₹3 lakhs in an NSC Issue VIII. In such a case you will only be able to claim tax benefits on ₹1.5 lakhs provided you have not invested anything else like life insurance or tax saving mutual funds (also covered under 80C).

  • Tax payable on returns:

The other side of the taxation of NSC is the tax that can be due on the returns. When it comes to other investments, like a fixed deposit, the tax that is due to be paid on the returns earned is deducted at source by the banks. With NSC, no tax is deducted at source and it is the responsibility of the certificate holder to declare the income so that appropriate income tax can be calculated and charged.

One thing that needs to be known when it comes to the tax is that the interest earned throughout the tenure of the NSC is not taxable. How this works is that the interest earned each year is added to the invested amount as a fresh investment. This means that the interest earned is now eligible for tax deductions under section 80C. Only when it comes to the interest that is earned in the last year does income tax actually come into play since the last years’ interest is not invested in the NSC but paid to the hold along with the maturity value of the entire investment.

Q-3 What are the fees and charges associated with NSCs?

Ans- When it comes to the fees and charges associated with the issuance of a National Saving Certificate, the amount charged is ₹5 and is payable in the following scenarios:

  • When the certificates are transferred from one person to another person or an entity.
  • When the postmaster issues a certificate of discharge upon encashment of certificates.
  • When a holder requests for duplicate certificates.
  • When the denomination of the certificate is changed.
  • When the nomination is made after the certificates have been purchased.
  • When the nomination is changed.

Q-4 Can NRI purchase NSC?

Ans- No, NRIs are not allowed to purchase NSCs. Only residents of India can invest in such schemes.

Q-5 Is premature withdrawal of NSCs is allowed?

Ans- The NSC investment comes with a lock-in period that is equal to the maturity of the certificates. They can only be withdrawn before the maturity date if:

  • The holder of the NSC passes away.
  • The holder of the certificate has forfeited them through a pledge.
  • A court of law has ordered that the NSC be paid prematurely.

Q-6 What amount will I receive on premature withdrawal of NSC?

Ans- If less than a year has passed since the certificate was purchased then only the invested amount will be returned and not interest will be paid.

If the period that has elapsed since the certificates were bought is between 1 year and 3 years then the interest payable will be simple interest.

Q-7 Can I transfer the ownership of my NSC?

Ans- Yes, you are allowed to transfer the ownership of your NSC, provided that a written consent will be needed from the postmaster of the post office where the certificates are held.  Ownership can be transferred from:

    • The original holder of their nominee if the holder has died.
    • They can also be transferred from the original holder to a court or any other person as directed by a court.
    • If the certificates are of the joint holding type then they can be transferred from one of the holders to another.

Other things to be kept in mind for such transfers are-

  • The person to whom the certificates are being transferred will receive them only after a minimum of 1 year has passed since the date on which the certificates were bought.
  • If the certificates being transferred are held in the name of a minor then the guardian can transfer them only if he or she can prove that the proposed transfer is in the best interest of the child and that the child is alive and well.

Q-8 Can I transfer my NSC from one post office to another?

Ans- Yes, you can surely transfer your NSC from one post office to another, if you are moving from one place to another and are unable to travel to your post office in order to oversee your NSC investments. In order to do this the holder(s) of the certificate will need to submit an application, duly signed to the old, or the new, post office requesting the transfer.

Q-9 Can I nominate any beneficiary to my NSC?

Ans- Although it is not mandatory, it is always better to nominate someone to receive the benefits of your investment in the event of your death. If the certificates are held under the joint holding scheme and one of the holders passes away, the investment can still be operated by the other holder but in case all the holders pass away, the nominee will get the value of the NSC.

Q-10 Can a minor be nominated as a beneficiary to the NSC?

Ans- A minor can be nominated as a beneficiary but in such cases, an adult will also have to be mention as it will be this person to whom the benefits will be paid on behalf of the minor.

However, a nomination is not permitted if the NSC is purchased on behalf of the minor.

Q-11 How can nominations be made?

Ans-  Nominations and changes to nominations can only be made through the post office where the certificates were originally purchased.

  1. Q-12 Can a nomination be canceled or changed?

Ans- Yes, a nomination can be canceled or changed at any time using Form 3 and by paying a nominal fee of ₹5.

  1. Q-13 What happens if the holder passes away without making any nomination?

Ans- In case a holder passes away without having made any nomination, the amount held in the NSC will be paid to the legal heirs of the holder.

  1. Q-14 Can I get a loan against my NSC?

Ans- You are allowed to secure a loan against your NSC. The quantum of loan one can avail against National Savings Certificates depends on the bank which an individual approaches, with loan amounts varying according to individual policies in place. Banks can offer loans up to 85-90% of the NSC value, with the amount changing with changes in tenure of certificates. Certificates which have been in force for over 3 years stand to get the largest sum, whereas new certificates which are under a year old are likely to get the least amount. Banks might keep a margin before offering a loan against securities.

Q-15 What is the process of obtaining a loan against NSC?

Ans- For the purpose of securing the loan, the certificates will have to be transferred to the bank that is providing the loan. Such a pledge can also be made to the president of India or the governor of the state where you reside. It can also be pledged to a government company or a corporation or a local authority. The postmaster overseeing the pledging process will make a note on the certificate that will say “Transferred as security to ”. After completion of the process, the entity to whom the certificates are given will be considered the new holder of the certificate until they are re-transferred to the original holder. In case the current certificates run out of space to make notifications of transfers, the postmaster can issue a new certificate which will be held in the same regard as the one which it is replacing.

Q-16 What will be the tenure of the loan?

Ans- The tenure of a loan obtained against National Savings Certificates is equal to the tenure of the certificate. Borrowers can repay the loan in advance before the tenure ends. Certain banks provide an option to repay the loan in EMIs, spread across the tenure.

Q-17 What will be the interest rate charged by the bank on such loan?

Ans- The interest rate charged on loans against NSCs vary from bank to bank and subject to certain terms and conditions. Most banks charge an interest ranging from Base Rate + 4% to Base Rate + 7%. The rate is lower as compared to personal loans.

Q-18 Can a trust or a HUF invest in NSC?

Ans- Under the rules of Issue VIII of NSC, trusts and HUFs cannot invest in NSC.

Q-19 Can armed forces personnel invest in NSC?

Ans- Yes, personnel of the armed forces can invest in NSC. In their case, should they pass away or desert, the postmaster can be directed by the forces to pay the nominee or the legal heir the entire amount that was due on the investment.

Q-20  How can I encash my NSCs on maturity?

Ans- If you wish to encash your NSCs on maturity, you can do so by approaching the relevant post office where you purchased and registered your National Savings Certificates. You will have to fill up the NSC transfer form and submit it to the relevant authority and sign the certificate after receiving the amount. In case of certificates which were purchased on behalf of minors, the initial purchaser should sign the certificate and get it attested by the legal guardian of the minor.

Q-21 What are the documents required to encash my NSCs?

Ans- The documents required for encashment are listed below:

  • NSC encashment form
  • NSC certificate (original)
  • Proof of identity (driving Licence, voter ID)
  • Signature of the nominee on the certificate is required. Attestation by a guardian is mandatory in case a certificate is purchased on the behalf of a minor. If there are no nominees, the legal heir can opt for encashment upon submission of form SB84. In the event of the death of the account holder, the nominee can opt for encashment by submitting the following forms:
    • Annexure 1: Claim settlement application (registered at a post office)
    • Annexure 2: Claim settlement application (legal evidence)

Q-22 Can duplicate certificates be issued in case of an unfortunate situation?

Ans- If you have lost your certificates, or if they have been rendered useless as a result of destruction or even theft, you can submit an application to the post office that you got the certificates from, mentioning details such as the number of the certificates, the dates on which they were purchased and the amounts for which they were purchased including the reason for the request for duplicate NSCs.

If your post office is otherwise inaccessible, you can submit the application for duplicate certificates at any post office and they will forward it to the appropriate one.

If the value of the lost certificates is more than ₹500 then an indemnity bond will be required that will have either approved securities to back it or a guarantee from a bank. But if the certificate being replaced is submitted as proof of destruction of the original then no indemnity bonds or securities will be required. This will, however, depend on the discernibility of the authenticity of the destroyed certificates.

Once a duplicate certificate is issued, it will be redeemable only at the post office where it was issued.

 

Pragati Rajoria

Pragati Rajoria

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About Me

I’m a Commerce Graduate & CFP Professional, engaged in blogging since 3 years. I’m not affiliated with any financial product. The purpose of writing blog is to spread financial awareness and help people in achieving excellence for money. Please note that the views expressed on this Blog/Comments are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment advice or legal opinion.

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