Tuesday, March 27, 2012

National Saving Certificate - Tax treatment on Maturity Amount!

The National Savings Certificate popularly referred to by its acronym NSC is a post-office savings scheme. NSC is a good medium term investment option.

National Saving Certificate - Tax treatment on Maturity Amount!

The contributions you make to NSC qualify for section 80C deduction up to Rs. 1 lakh. Subsequently, even the interest that accrues every year and gets reinvested qualifies for 80C deduction and also note that Interest received on maturity (last year) will not eligible for rebate u/s 80 C. However, on maturity, the interest income is taxable as per respective slab of individual.

At the end of NSC maturity period there will not be any tax liability on the Principal amount invested. Interest earned from NSC is taxable. Interest on NSC is taxable under the head 'Income from other sources'.
Interest accrued every year is liable to tax (you can include that every year on accrual basis to your income as income from other sources). However, interest is also deemed to be reinvested and thus eligible for section 80C deduction. It is conceded by the Board Circular No. 405 dated January 15, 1985 (1985) 151 ITR (St.) 48, that the interest accretion for each year (as indicated in the certificate) can be treated as reinvestment in the same NSC, so that interest which has to be offered for tax can be claimed as deduction under Sec. 80C, subject to the overall ceiling of Rs.1 lakh under Sec. 80C along with other savings. Presumably the new ten-year NSC will also qualify for deduction under Sec. 80C, if notified, with the same treatment for interest.

Now two situations we discuss here:
  1. When you declare the interest from NSC on yearly basis
  2.  When you don’t declare the interest from NSC on yearly basis, but consider entire amount at the time of maturity

When you declare the interest from NSC on yearly basis
It is advisable and even allowed that we can declare the interest from NSC on yearly basis even though interest is deemed to be reinvested and more so considered as fresh purchase and we get benefit under section 80C (deduction from 80C), So, over the period of six years, you could declare the interest income for each year, thus it does not amount to a huge sum at the time of maturity.

When you don’t declare the interest from NSC on yearly basis
If you do not declare the interest on an accrual basis, then the entire interest earned 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.

Interest income is taxable at the respective slab rate of the individual.

How to find Interest rate of NSC check this calculator….


  1. Which form is used for tax not to be deducted on national savings scheme?

  2. Hi Neeta,

    You can use form 15G (if below 60 yrs) and form 15H (if 60 or above)

    Refer this article about Submission of Form 15G or Form 15H
    Thursday, April 19, 2012

  3. Hi,

    If we declare the interest on a yearly basis. Can we use the same NSC for tax deduction every year?

    1. Hi Anonymous,

      As you know NSC is a cumulative scheme, means interest is not paid to the investor but instead accumulates in the account.

      As each year's interest is automatically re-invested in the NSC, it qualifies for a fresh deduction under Sec 80C, thereby making it tax free, except last year's interest


    2. You can't use same NSC amount for tax deduction every year.
      You have to consider only Interest income for tax deduction.

  4. Hi,
    Myself deepak,
    If i cosider interest on yearly basis and take it as my income , than would my int. Income on maturity be taxable

    1. If you are considering interest on yearly basis so the principal amount which you receive at the time of maturity is tax free, where as interest amount is taxable.
      Last year interest income is taxable, but last year interest can't be claimed as deduction under section 80C

  5. Hi,
    Your article was very helpful in clearing some of my doubts about NSC interest, and to write an article about the same, at:
    I would appreciate it a lot if you could review the content and provide your valuable feedback.

    1. You narrated the complete details with illustration.
      Good work.

    2. I added your blog link in my blog post.


  7. Sir,
    Suppose every year I am paying tax on interest accrued on NSC and I am not taking the rebate under sec 80c as my other investments qualify under sec80c and I am investing every month in NSC. Now my point is after 10 years when my NSCs will be matured in every month then whether the whole maturity amount will be considered as taxable income or it will be totally tax free at that time as I already paid tax on interest accrued every year.

    Kindly advise..

  8. i would like to know if s certain amount has been invested in your national saving certificate scheme in the year 1993 and the same was due for maturity in the year 1999 but due to the said certificate being lost or misplaced the same has not been encashed till date. i would like to know whether i would be eligible to get interest on the maturity amount from the year 1999 till date or know. i have just found the certificate.
    kindly advice

    1. You will receive what is mentioned in nsc certificate as how much you will receive at the time of maturity and not interest till date.

  9. ok thanks a lot


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