Dear readers we have tried to make you aware of the importance of the Retirement Planning through our articles. The quality of life you want in the future will depend on what you contribute in the present. You will probably want to retire happily with personal and financial peace of mind. To lead a better life after retirement, start planning for your Retirement. Today we are going to discuss a very attractive retirement planning tool i.e.; National Savings Certificate (NSC).
National Savings Certificate, popularly known as NSC, is a time-tested Tax saving instrument that combines sufficient returns with high safety. NSCs are an instrument for facilitating long-term savings. A large portion of middle class families use NSCs for saving on their tax, getting double benefits. They not only save tax on their hard-earned income but also make an investment which is sure to give good and safe returns.
How to Purchase a National Savings Certificate
National Savings Certificate can be purchased from all Head Post Offices and certified Post Offices. A Certificate can be purchased by an adult for himself or jointly by an adult on behalf of a minor. Any person eager to purchase National Savings Certificate shall apply in a prearranged Form in any Post Office in person or through a certified agent Small Savings. The application can be made either in person or through an agent. Post office agents are active in nooks and corners of the country. Following types of NSC are issued:
· Single Holder Type Certificate: This can be issued to: (a) An adult for himself or on behalf of a minor (b) A Trust.
· Joint 'A' Type Certificate: Issued jointly to two adults payable to both holders jointly or to the survivor.
· Joint 'B' Type Certificate: Issued jointly to two adults payable to either of the holders or to the survivor.
Who can Invest in NSC
Any individual or on behalf of minors and trust can purchase a NSC by applying to the Post Office through a representative or an agent. Payments can be made in cash, cheque or DD or by raising a debit in the savings account held by the purchaser in the Post Office. The issue of certificate will be subject to the understanding of the cheque, pay order, DD. The date of the certificate will be the date of realization or encashment of the cheque. If a certificate is lost, destroyed, stolen or mutilated, a duplicate can be issued by the post-office on payment of the prescribed fee. Following are the persons/bodies those who can invest in NSC.
· An adult in his own name or on behalf of a minor
· A trust
· Two adults jointly
Things to know about National Savings Certificate (NSC)
Following are the important points that you should know about NSC
Denominations and Limit of NSC
National Savings Certificates are available in the denominations of Rs. 100 Rs 500, Rs. 1000, Rs. 5000, Rs. 10,000, etc. There is no maximum limit on the purchase of the certificates. So it is for you to decide how much you want to put in the NSCs. This is of course a huge benefit for you because you can decide as much as your budget allows.
Payment for the purchase of the Certificate may be made to a Post Office in cash, locally executed cheque, order, demand draft drawn in favour of Postmaster, a properly signed Withdrawal Form with the Passbook for withdrawal from the Post Office Savings Bank Account or surrender of a matured old certificate duly discharged as Received payment during issue of fresh certificate vide application attached.
Maturity of NSC
Period of maturity of a certificate is six years. Presently interest paid is 8.16 % per annum half yearly compounded. Maturity value of a certificate of any other denomination is at proportionate rate. Premature encashment of the certificate is not permissible except at a discount in the case of death of the holder(s), forfeiture by a pledgee and when ordered by a court of law.
Till FY 2004-'05, an individual could avail of a deduction under Section 80L of the Income Tax Act. This boundary was Rs 12,000 of interest income received throughout the financial year. This deduction has been done away with from FY 2005-'06. Now all interest income is taxable at the respective slab rate of the individual. The interest accrued on NSC is taxable. But, it is also qualified for a deduction under Section 80C.
Generally it is advisable to declare accrued interest on NSC on a yearly basis. So over the period of six years, you could declare the interest income for each year. In such a case it does not amount to a huge sum. If you do not declare the interest on accrual basis then the complete interest earned (difference between the amount deposited and the maturity value) would accumulate in the year of maturity. You could then claim it under Section 80C but it would be a huge amount and would be taxable at the current applicable tax rate.
Rate of Interest
Rate of Interest is 8.16 per cent compounded half yearly and paid after the maturity period of Six years along with the principal amount. The interest shall accumulate to the holder of the certificate the end of each year and such interest shall be deemed to have been re invested on behalf of the holder and aggregated the amount of face value of the certificate.
The Certificate can be enchased after Six years. The Certificate can be encashed at the Post Office at which stands registered or it can also be encashed at any other Post Office if the Office-In-Charge of that Post Office is pleased verification from the office of its registration that the person presenting the Certificate for encashment is entitled to.
The person entitled to receive the amount outstanding under a Certificate shall on its encashment sign on the back thereof in token of having received the payment. If the Certificate is purchased on behalf of a minor who has since attained majority, Certificate shall be signed by such a person himself but his signature shall be attested either by the person who purchased the Certificate on his behalf or by any person who is known to the Postmaster.
In case of death of the holder in respect of which a proposal is in force, the nominee or nominees shall be entitled encash the Certificate at any time before or after the maturity of the Certificate or they can sub-divide the Certificate suitable denominations in favour of individual nominees or two adult nominees jointly. For this the surviving nominees shall make an application to the Postmaster supported by the proof of death of the holder.
A Certificate may be in advance encashed in case of the Certificate is encashed within one year from the date of Certificate; only the face value of the Certificate shall payable. If the Certificate is encashed after expiry of One year but before the expiry of Three years from the date, an amount equal to the face value of the Certificate together with simple interest shall be payable. If Certificate is encashed after the expiry of Three years from the date of Certificate the amount payable inclusive of interest for the denomination of Rs.100.
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Replacement of Lost or Destroyed Certificate
If a Certificate is lost, stolen, destroyed, mutilated or defaced the person allowed thereto may apply for the issue of a duplicate Certificate to the Post Office where the Certificate is registered. Application shall be accompanied by a statement showing specifics such as number, amount, date of the Certificate and circumstances attending such loss, theft, destruction, mutilation or defacement. If the Officer-In-Charge is satisfied, he issues a duplicate Certificate on the applicant furnishing an indemnity bond in the prescribed Form with sureties or with bank's guarantee.
Features regarding transfer of the Certificate (NSC) are:
National Savings Certificate plan was issued by Government of India, Ministry of Finance (DEA) under the Notification Number G.S.R. 496 (E) dated May 1, 1989 and it is further amended from time to time. Following are the important features regarding transfer of the Certificate that are:
• A National Savings Certificate can be transferred from one Post Office to another by making an application in prescribed Form.
• The Certificate can also be transferred from one person to another with the before consent in writing of the Postmaster or the Head Postmaster. The transfer can be made after the expiry of a period of at least one year from the date of Certificate.
• On an application being made in the prescribed Form by the transferor and transferee, the Postmaster may allow transfer of any Certificate (pledging of Certificate) as a security to the President of India or Governor of a State in official capacity, to the Reserve Bank of India or any planned bank to any co-operative society to a Corporation Government company, to a local authority or to a housing finance company approved by the National Housing Bank. Transfer is allowed only for the whole amount and not for the part of it. Transfer of the Certificate purchased on behalf of minor shall be allowable only if his guardian certifies that the minor is alive and the transfer is for the benefit of minor. The Certificate may be re-transferred to the investor on the written authority of the pledge with the previous sanction of the authorized Postmaster.
• National Savings Certificate can be purchased in Demat Form in select Post Offices. Nomination facility is available for the National Savings Certificate. If such nomination is not made at the time of purchasing the Certificate, it may be made by the single holder, the joint holder or the surviving joint holder, by applying in prescribed Form at any time after the purchase of the Certificate. No suggestion shall be made in respect of a Certificate applied for and held by or on behalf of a minor. A nomination made by the holder or holders of the Certificate may cancelled or mixed by submitting application in prescribed Form affixing postage stamps together with the Certificate to Postmaster.
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All you should know about National Savings Certificate (NSC)
· Minimum investment Rs. 500/- No maximum limit.
· Rate of interest 8% compounded half yearly.
· Rs. 1000/- grow to Rs. 1601/- in six years.
· Two adults, Individuals, and minor through guardian can purchase.
· Companies, Trusts, Societies and any other Institutions not eligible to purchase.
· Non-resident Indian/HUF cannot purchase.
· No pre-mature encashment.
· Annual interest earned is deemed to be reinvested and qualifies for tax rebate for first 5 years under section 80 C of Income Tax Act.
· Maturity proceeds not drawn are eligible to Post Office Savings account interest for a maximum period of two years.
· Facility of reinvestment on maturity.
· Certificate can be pledged as security against a loan to banks/ Govt. Institutions.
· Facility of encashment of certificates through banks.
· Certificates are encashable any Post office in India before maturity by way of transfer to desired post office.
· Certificates are transferable from one Post office to any Post office.
· Certificates are transferable from one person to another person before maturity.
· Duplicate Certificate can be issued for lost, stolen, destroyed, mutilated or defaced certificate.
· Nomination facility available.
· Facility of purchase/payment to the holder of Power of attorney.
· Tax Saving instrument - Rebate admissible under section 80 C of Income Tax Act.
· Interest income is taxable but no TDS
· Deposits are exempt from Wealth tax.
Difference between PPF and NSC
· The first difference between the Public Provident Fund and the National Savings Certificate is that NSC is a post-office savings scheme while the PPF was recognized by the central government in 1968. But both are very safe since they are backed by the government.
· The minimum amount you have to put into your PPF account in a year is Rs 500. The maximum you can put is Rs 70,000 per year. In NSC the minimum amount is Rs 100. Here is no upper limit on investment.However NSC is sold in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. So, if you want to invest Rs 30,000, you will have to buy three certificates of Rs 10,000 each.
· PPF is compounded yearly. NSC is compounded half-yearly (twice a year). Let's say on April 1, 2008, you invested Rs 30,000 in PPF and the same amount in NSC. On April 1, 2009 your PPF account will have Rs 32,400 while your NSC will have Rs 32,448.
· Both of these investments fall under Section 80C. That means the investments made under this section are eligible for an income deduction upto a maximum Rs 1, 00, 000. With PPF, you pay no tax on the interest you earn.
We believe that all the articles that we have published in our Retirement Planning Series did help you to understand clearly about the importance of Retirement Planning and how it helps you to create a strong financial back up after your retirement. As retirement is an unavoidable stage of life, start planning for Post Retirement life with Indianmoney.com. In case of any queries feel free to contact Indianmoney.com.