Can you gift an NSC?

My grandfather (senior citizen) wants to invest in a National Savings Certificate (NSC) in the name of his grandchildren (minor children). Would he be able to get a deduction under Section 80C? - Anonymous

A National Savings Certificate (NSC) is a fixed-income investment scheme that you can open easily with any post office. It provides you guaranteed returns which are better than those provided by most fixed deposits (FDs). Besides, it also protects your capital and offers tax benefits. It is a Government of India initiative to encourage small and medium investors to invest while also saving on taxes.

Gifting an NSC
The NSC issue rules do not have any specific provision regarding gifting a National Savings Certificate. It does mention how it can be transferred to another person, but they are all under circumstances such as death, court order and pledging. So there is no direct way to gift an NSC. However, it can be gifted indirectly. Here's how:

If your goal is to gift the investment during your lifetime, there are two possible scenarios -

• If the grandchild is currently a minor - In this case, the grandfather can open an account on behalf of the grandchild and the payment will be made to the grandchild upon maturity.
• If the grandchild is currently an adult - In this case, a "Joint B-Type" account can be opened with the grandfather making the deposits and the grandchild receiving the payment upon maturity.

Tax benefits
The provisions of the Income Tax Act state that the tax benefits are available to the person depositing the money into the NSC account. In both the above scenarios, as long as the grandfather makes the deposit, he shall be eligible for deduction u/s 80C.

The simplest choice
An alternative is that the grandfather invests in NSC himself and keeps the grandchild as a nominee. However, in this case, the grandchild would receive the money only upon the passing away of the grandfather. The grandfather would be eligible for tax deduction u/s 80C.

Tax deduction can be availed by the grandfather if he is the one depositing the money. If he wants to invest in NSC in the name of his grandchild, then he can do so by opening an account on behalf of his grandson (if minor) or a joint account (if adult).

Suggested read: Can I gift a mutual fund to someone?