Withdrawal, transfer and loan facility in National Savings Certificate (NSC):
National Savings Certificate (NSC) is one of the popular saving schemes offered by the Government of India through post offices. The purpose of issuing the certificate is to inculcate saving habit in people. Along with savings, it comes with several other features such as safety, tax benefit, etc. The post below will take you through various details on NSC.
Features of NSC VIII
Currently, there is only one type of National Savings Certificate available for issue i.e. NSC VIII. Salient features of this certificate are listed below:
• This scheme is specifically designed for businessmen, government employees and other salaried class people who fall under the income tax assessment.
• The minimum amount to be invested in such instrument is Rs. 100 and there is no upper cap on the investment.
• The rate of interest on NSC VIII is 8.1% with effect from April 01, 2016 & 8.0% with effect from October 01, 2016 .
• Tenure is of 5 years.
• It is available in the denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs. 10,000. An investor can purchase any number of certificates for any denominations.
• There is no tax deduction at source i.e. No TDS.
• You can avail loan from banks against the certificates by keeping them as collateral.
• Trust and HUF cannot invest in NSC.
• It qualifies for tax rebate under section 80C of the Income Tax Act, 1961 subject to the investment up to Rs. 1,00,000 per annum.
Note: There was another type of issue i.e. NSC IX which has been discontinued with effect from December 20, 2015.
Modes of holding NSC
Based on the holding type, NSC is categorised into three:
• Single holder type certificate
Individuals can hold this type of certificate for themselves or on behalf of the minor. An individual can add a nominee to such account but the account will be operational by the certificate holder only.
• Joint “A” type certificate
This type of certificate is issued jointly to two adults and is payable to both the holders at the time of maturity. However, it can be operated by any of the holders and in case of cancellation, transfer, change in nomination details, etc. signatures of both the holders are mandatory.
• Joint “B” type certificate
This type of certificate is also held by two adults jointly. Maturity proceeds can be given to any of the holders at the time of maturity.
The current interest rate offered on NSC VIII issue is 8.1% per annum with effect from April 01, 2016 & 8.0% with effect from October 01, 2016. The interest is compounded on half yearly basis, accrued annually and is deemed to be reinvested.
Note: Maturity value of the certificate for an amount of Rs. 100 bought on or after April 01, 2012 shall be Rs. 147.61 at the end of 5 years i.e. at the time of maturity. Maturity value of the certificate for an amount of Rs. 100 bought on or after October 01, 2016 shall be Rs. 146.93 at the end of 5 years i.e. at the time of maturity.
Interest on NSC is paid on maturity and is taxable as per the income tax slab of the individual. As the interest is reinvested, it is eligible for deduction under section 80C.
For instance, if you bought NSC for Rs. 1,00,000 at an interest of 8.1% per annum, the calculation of Principal invested and interest earned on accrual basis for 5 years will be as per the table below:
From the table above, the total interest earned at the end of the 5th year i.e. at maturity is Rs. 48,737.63. This interest will be taxable as per your income tax slab.
There is no TDS on the interest earned, but you have to declare the interest as income in the income tax return. Also, you can claim up to an investment of Rs. 1,00,000 per annum in NSC under section 80C of the Income Tax Act.
• You can get the duplicate certificate in case of loss or damage to the original.
• Deduction under section 80C is available.
• You can avail loan from banks against your certificates.
• There is no upper cap on the investment amount.
Documents required for purchasing NSC
Below are the documents required to purchase NSC:
• Proof of identity (driving license, passport, voter id card, Aadhar card, PAN)
• Proof of address (driving license, Aadhar card, passport)
• Passport size photograph
Details to be filled up in the Application form
You have to fill up the below details in the application form:
• Account holder’s name
• Amount of cash paid/cheque no. in case of payment through cheque
• Account type
• Guardian’s name (if applicable)
• Nominee details
• Investor’s signature
Procedure to buy NSC
Currently, you can only purchase an NSC certificate through offline mode from any of the post offices in India. Below is the procedure to buy an NSC certificate:
• Get the form from post office and fill up the requisite details correctly in the form
• Submit the requisite documents
• Fill up the nomination details
• Make the payment. You can make the payment in either of the modes mentioned below:
Cheque, pay order or demand draft (DD) drawn in favour of the postmaster
Surrendering an old matured certificate and mentioning the following on the back of the surrendered certificate: “Received payment through issue of fresh certificate, vide application attached”
Submitting a request for withdrawal of funds from the Post Office Savings Bank account
• After the verification of details and documents, postmaster will hand over the NSC for the desired amount. In case of unavailability of the certificates, postmaster will give you a provisional certificate which can be later exchanged with the original certificate.
Important points on nomination are listed below:
• You can add a nominee at the time of purchase using Form 1 or anytime before the redemption of the certificate using Form 2. In the event of the death of the certificate holder, the nominee will be entitled to claim the maturity amount.
• Nomination can be changed anytime before the maturity using Form 3.
• If a minor has been nominated as a beneficiary, an adult name also has to be mentioned as they will be paid the benefits on behalf of the minor.
• If there is no nomination, the maturity amount will be paid to the legal heirs in case of the death of the certificate holder.
• Nominations are not allowed on a certificate bought on behalf of the minor.
• If there are multiple nominees, the maturity value will be subdivided in the appropriate denominations for the individual nominees.
• To claim the maturity amount, nominee has to present the death certificate of the certificate holder along with the application.
NSC comes with a lock-in of 5 years so premature withdrawals are not permitted. However, there are few exceptions to this rule, and premature withdrawal is permitted under below-mentioned circumstances:
• On forfeiture by a pledgee and pledgee being a Gazetted Government Officer when the pledge is in conformity with this regulation.
• On the demise of the certificate holder or the holders in case of joint holders.
• When ordered by a court of law.
Note: Interest will not be paid on the principal if the withdrawal happens within one year of the issue of the certificate. If the withdrawal happens after the completion of one year from issue date of the certificate, interest will be paid, and the encashment will happen at a discount.
Transfer of Ownership
Transfer of ownership from one person to another can be done only once form the date of issue to the date of maturity of the certificate. At the time of transfer, old certificates will not be discharged. Name of the old holder will be rounded and the name of the new holder will be written on the old certificate & on the purchase application (for non CBS Post Offices). The postmaster will certify the certificate by putting his signature along with the date stamp of the post office and his/her designation stamp on the certificate.
Transfer of NSC from one post office to another post office
To receive the maturity benefit, you need to submit the certificate to the post office from where the certificate was obtained. However, it causes much inconvenience if you have moved to another location or city and your old post office is not easily accessible. In such a case, you can apply for the transfer of NSC from the old post office to the post office of your choice by submitting an application for transfer in either of the post offices. Listed below is the process for transfer:
• You have to apply for the transfer from one post office to another using Form NC- 32
• Fill up the details such as your name, number and type of certificate, date of issue, denominations, serial number of identity slip issued, date of birth & name of guardian authorised to encash the certificate (in case the certificate is purchased on behalf of the minor), etc. in the form
• You also need to mention details such as issue of duplicate certificates, transfer spoilt, etc. in the form
• The form should also contain the details of the nominee such as name, address, date of birth (if the nominee is a minor), etc.
Note: Nomination should be the same as the one mentioned at the time of purchase
• All the holder(s) need to put their signature on the form. In case the certificate is bought on behalf of the minor, the guardian needs to put his/her signature
• After verifying the details, the postmaster will put his/her signature along with the date for the completion of the transfer process.
Note: You can only apply for the transfer if the certificates are not matured.
Issue of Duplicate Certificates
You can apply for the issue of the duplicate certificate in case of theft, loss, destruction, mutilation or defacement. Below is the procedure to apply for the duplicate certificate:
• You have to fill up Form NC 29 and submit it to the original post office from where the certificate was issued or to any post office near to you. If the application is submitted to the post office other than the original, it will be forwarded to the original branch.
• You have to fill up the details such as the name of issue of the certificates, serial numbers of the certificates, date of issue, denominations, name of the office of the issue, account type, registration number along with your the name, signatu re and address of the holder(s).
• In addition to the form, you also need to submit a letter mentioning the reason for the issue of the duplicate certificate, details of the certificate such as amount, issue date, serial number, etc.
• An indemnity bond along with one or more approved securities or with a bank guarantee also needs to be submitted if the value of the certificates is more than Rs. 500 in case of theft or loss.
• Once you submit the form and the letter, officer in charge of the post office will verify the reason for the issue of the duplicate certificate, process the application and issue the duplicate certificate.
• A duplicate certificate will serve as the original certificate for all the requisites. However, the claim on the certificate can be made only at the original post office from the certificate was issued.
• You also have to submit a fee of Rs. 5 for the duplicate certificate.
Loan facility against NSC
You can pledge your NSC to avail loan from a bank. You can avail such loan facility from any of the scheduled bank, cooperative bank or cooperative credit society. The postmaster will write on the certificate about the pledge. After the receiving the pledged certificate, the bank will process the loan.
NSC is a saving scheme run by the government and is more suitable for the risk-averse customers due to its safety and fixed interest rate features. You can consider adding it to your debt portfolio; however, do remember it does not give inflation adjusted return.