National Savings Certificate

The NSC is a five-year certificate bought at the post office. Interest is compounded annually and paid only at maturity, with the principal, so nothing leaks out along the way.

The Government of India guarantees both interest and principal. The investment qualifies for the section 123 / Schedule XV deduction under the old regime, and liquidity is deliberately very limited — both of which make it, in the workbook's view, suitable for accumulation.

The catch is the five-year term. Retirement is usually further away than that, so the investor must have the discipline to reinvest the proceeds each time.

Who. Individuals, on their own account or on behalf of minors.

Investment. Minimum Rs 1,000, then any sum in multiples of Rs 100, with no maximum. Cash, cheque or demand draft.

Tenor. 5 years.

Return. Compounded annually, accumulated and paid on maturity.

Transfer. From one person to another only with the consent of a designated post office official, in specific situations such as transfer to heirs, or to institutions where the certificate was offered as security for a loan.

Premature encashment only on:

1. death of the holder;
2. forfeiture by a pledgee;
3. orders of a court of law.

Tax. The investment is deductible under section 123 read with Schedule XV of the Income-tax Act, 2025 (section 80C of the 1961 Act), subject to conditions and limits; not under the new regime. Accrued interest is taxable, but where it is deemed to be reinvested it may be eligible for the same deduction.

Neha buys an NSC for Rs 1,00,000. The workbook gives no current NSC rate, so use 7.7 per cent purely for illustration.

She receives Rs 1,44,903 at maturity and nothing before.

Tax, old regime. In year 1 she may claim the Rs 1,00,000 investment within her Rs 1,50,000 aggregate. Each year's accrued interest is taxable. Interest deemed reinvested (years 1 to 4, which stays inside the certificate) may itself qualify for the deduction, subject to conditions and the same aggregate; the year-5 interest is not reinvested.

In year 3 she needs cash. She cannot encash — premature encashment is allowed only on death, forfeiture by a pledgee or a court order. She can, however, pledge it as security for a loan, which is one of the specific cases in which the certificate may be transferred.

Chapter 2, section 2.10.4 (Small Saving Instruments), introduces the NSC. Chapter 6, section 6.2.1 (Accumulation Stage Products), profiles it on the standard headings. Chapter 7, section 7.5, lists it among tax-advantaged accumulation products. Expect recall of the 5-year tenor, the Rs 1,000 minimum in multiples of Rs 100, the three grounds for premature encashment, and the tax treatment of accrued interest.

• Premature encashment is almost impossible — death, forfeiture by a pledgee, or court order only. It is not "after 1 year with penalty".
• No maximum investment. Rs 1,000 minimum, multiples of Rs 100.
• Interest is paid at maturity, compounded annually — no periodic payout.
• Accrued interest is taxable even though it is not received; the deemed-reinvestment deduction is a "may be eligible", within the same aggregate limit.
• 5 years, not 10 or 15. The workbook stresses that this short maximum tenor means proceeds must be reinvested.
• The deduction is old regime only.
• Do not confuse with the KVP, which has no deduction and allows encashment after 2½ years.