NSC Premature Withdrawal

National Savings Certificate, popularly known as NSC, is a Government of India’s small savings initiative to encourage small and middle-income individuals to save money. Besides, it offers income tax incentives. With attractive interest rates, the NSC structure and features tailor the savings scheme to benefit the maximum number of investors. You can also withdraw your NSC prematurely in case of an emergency. However, you have to pay some penalty in such a case.

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Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

Let us learn more about NSC premature withdrawal.

Understanding National Savings Certificate:

NSC is among the most popular small savings instruments for low-risk investors looking to grow their money coupled with attractive income tax benefits. The investment option is simple, with a broad reach in India’s remotest corner through post offices. You can buy the certificate in denominations of Rs.100 to Rs.10000 according to your capacity and goals. However, NSC has a fixed maturity and discourages premature withdrawal as it defeats the primary aim of the small savings.

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National Savings Certificate - Types:

NSC comes in two maturity buckets from which it derives its name despite identical features. Therefore, the two NSC types are:

NSC VIII Issue: The certificate’s tenor is a fixed 5-years, during which you cannot withdraw prematurely because of the lock-in clause.
NSC IX Issue: The tenor here is a fixed 10-years during which you cannot close the certificate prematurely under the lock-in clause.

However, the former is more popular among the two due to its shorter lock-in, helping meet the individual’s investment objectives while using the maturity value fruitfully.

National Savings Certificate – Maturity Withdrawal Rules:

Withdrawal of the NSC’s corpus is simple and uncomplicated after maturity. You can avail of online or offline procedures to encash the matured NSC. In addition, it is not necessary to submit the maturity claim at the issuing post office alone, but you can do so at your nearest post office.

Online: It is a boon that many post office branches are running under the CBS platform. The processing is immediate and hassle-free if the issuing post office branches are under CBS connectivity. First, however, you need to adhere to the following steps.
- Submit the original NSC alongside your identity proof to the encashing post office.
- The dealing official verifies the credentials from the issuing branch through the CBS channel.
- You receive the maturity proceeds immediately after the successful verification.
Offline: What happens if the post office branches are not functioning under the CBS platform? The procedure is lengthy but should not take more than 10 to 12 days. The steps to follow are:
- Visit the post office near you and submit a hand-written maturity claim alongside the original NSC, identity slip received during purchase, and valid identity proof.
- The processing and payment are immediate if the identity slip is present. Else, the verification procedure is lengthy and may involve an extended period.

The verification takes longer without the identity slip due to its criticality. Accordingly, the encashing post office adopts the following procedure for completing the verification process.

The postmaster of the encashing post office performs the preliminary check from the “Lost and stolen” register to satisfy its status before sending it to the divisional office.
The divisional office forwards the NSC to the issuing post office’s parent divisional office.
The recipient divisional office verifies the claim in consultation with the issuing post office.
The NSC travels back on the same route if the verification is successful for processing and payment.

National Savings Certificate – Premature Withdrawal Rules:

The government promotes the NSC among the small and marginal investors to inculcate the habit of compulsory savings. The attractive tax benefits follow a similar rationale. However, the NSC comes with a lock-in for the entire tenor, but premature withdrawal is possible under exceptional circumstances listed below:

If the NSC’s single or joint holder passes away
Under an order from the Indian court of law
A government-gazetted officer pledges forfeiture in compliance with the NSC rules

The following points come into play immediately due to the premature closure of the NSC:

No interest is payable if the NSC is prematurely closed within one year from the opening date. However, the refund covers the total investment amount.
In contrast, premature closure after one year from the opening date allows payment of the investment and the accrued investment amount.

In Conclusion:

Any other investment vehicle is hardly as attractive as the NSC for small and mid-income investors. It is ideal as an investment for its tax-saving properties. In addition, you can pledge the NSC to any bank as collateral against loans. The government’s objective of spreading the habit of savings is largely successful. Under the strict monitoring of the Ministry of Finance, NSC offers high-interest rates signifying its social security concerns.

FAQ's

Do the NSC rules permit transfer from one person to another?

A: The NSC rules permit the transfer of NSC ownership under specific circumstances like the demise of the holder, court order, or pledging the NSC to the specified authority.
Is the NSC purchase confined to resident Indians?

A: Yes, any resident Indian adult can purchase NSC, but the NRI cannot do the same. In addition, there is no limit to investment or the number of NSC an individual can hold.
Do post offices issue duplicate NSC if the original is stolen, missing, or destroyed?

A: Yes, the post office can issue duplicate NSC, subject to complying with the underlying rules. However, the process is simple if the holder can provide a copy of the original NSC and the replacement copy application.
Which are the documents to submit for withdrawing after NSC maturity?
A: You must submit the following documents for encashment of your matured NSC:
- NSC encashment form or hand-written application
- Original NSC
- Identity proof
- A signed discharge to confirm payment
Is the NSC corpus on maturity subject to the application of TDS?

A: No, the NSC corpus on maturity does not invite the TDS application, and the holder receives the total maturity value.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-01-2025

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).