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National Savings Certificates (NSC)

InvestmentYogi: All you need to know about National Savings Certificates (NSC)


NSC certificate interest calculator The reliable National Savings Certificate (NSC) looks like it may have lost popularity with countless competing investment options available such as equities, mutual funds, unit linked insurance and fixed maturity plans. However, there is no ignoring the instrument's respectable returns, which are not only assured, but also tax-exempt (under 80C) and government guaranteed.


Compared with the NSC, the Public Provident Fund (PPF) has traditionally been more popular on account of its 8% tax-free interest. However, the PPF has a maximum investment limit of Rs 1,00,000 per annum (this means the maximum amount one can invest in PPF every year is capped at Rs 1,00,000).


Investment limit

NSCs do not have a limit of how much one can invest. What's more, interest up to Rs 1 lakh is tax-free. You read that correctly. NSCs offer you the possibility of earning up to Rs 1 lakh fully tax-free.


This is because NSC is the only small saving scheme wherein not only the initial deposit, but also the interest for the first five years, out of its term of six years, is eligible for a deduction under section 80C.


Interest and returns

NSC offers 8.8% interest compounded half-yearly. Due the compounding, the effective rate per annum works out to over 9%. It is a cumulative scheme with a term of six years, meaning, though the interest accrues every year, it is paid to the investor together with the initial capital invested at the end of six years. For example, Rs 10,000 invested in NSC in 2010 would grow to Rs 16,010 at the end of 2016.


Tax treatment

Let’s talk about the tax treatment of the interest paid out . Unlike PPF, where the full amount of interest is tax-free, NSC interest is taxable. However, as it is a cumulative scheme (eg interest is not paid to the investor but instead accumulates in the account), each year's interest for the first 5 years is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. Only the final year's interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the earlier years and the capital amount.


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Example: You invest Rs 1,00,000 in an NSC on April 1, 2010. Interest on this investment for each year is shown in the following table:


April 1, 2010 Initial investment 100,000
Mar 31, 2011 interest for Yr 1:   8,160
Mar 31, 2012 interest for Yr 2:   8,830
Mar 31, 2013 interest for Yr 3:   9,550
Mar 31, 2014 interest for Yr 4:   10,330
Mar 31, 2015 interest for Yr 5:   11,170
Mar 31, 2016 interest for Yr 6:   12,070
Total interest 60,110
Total value of investment:   1,60,110


What you must ensure while filing tax return

To benefit from this feature of reinvested interest and its deduction, it is important to declare the accrued interest on NSC on a yearly basis in your tax return. In the above example, for FY 10-11, you will include the interest amount of Rs 8,160 in your tax return under the head “Income from Other Sources”. Under deductions, you will claim Rs 8,160 under Sec 80C as reinvested NSC interest. Both cancel each other out, making the interest in effect tax-free.


Important detail:

From the above discussion, it is shown that both NSC and PPF interest is tax-free. However, the difference is that PPF interest is tax-free per se, whereas the NSC interest becomes tax-free on account of the deemed reinvestment under Sec 80C. Remember that Section 80C has a limit of Rs 1 lakh. Your NSC interest would only qualify for the deduction provided you have funds left in Sec 80C. Provident fund contributions, insurance premiums, housing loan principal repayments, tuition fees, PPF, tax saving mutual funds and bank deposits --- not to mention any fresh investment in NSC --- are also covered under the same Rs 1 lakh limit. So, if you want to invest and take advantage of the tax-saving feature of NSC interest, remember to make the adjustment so far as the other tax-saving investments are concerned.


NSC post office tax saving scheme

Where and how to buy?

National Savings Certificates (NSC) are certificates issued by Department of post, Government of India and are available at most post offices in the country in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. NSCs can also be transferred from one person to another by paying a small fee. They can also be transferred from one post office to another.


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Investment Yogi : India's Leading Financial Service Providers offers detailed information on National Saving Certificate (NSC) 2010, NSC interest rate, NSC interest calculation, NSC tax treatment and NSC buying at post office

Published Apr 01 2010




vimala said:

Very useful article.Is tax eating away your hard earned money? Want to know more about bonds,post office schemes and other money related mattersclick the below link


April 18, 2010 10:42 PM

Gopal Gidwani said:

Very Good Article and very useful for investors

July 29, 2010 8:16 AM

Sanjeev said:

Dear Sir,

I have made one NSC today on 14/12/2010. I would like to know how shall i calculate

the interest for year ending 31 March 2011. Can i claim the interest amount as a fresh investment and the same will show under income from other sources ? os i have to wait till 2011-2012 so do the same.

Kindly suggest....

Kind regards


December 14, 2010 1:31 AM

praveen said:

Yes, the contents provided here are very useful and informative. I would appreciate the efforts done by the respective members.



December 31, 2010 5:37 AM

Raju, Sankati said:

Yes, The information provided is very infermative and useful.

January 1, 2011 2:51 PM

Vasant Acharya said:

Can I invest on NSC in my wife or kid name and take tax exemption u/s 80C

January 7, 2011 6:20 AM

Vasant Acharya said:

can i invest in NSC in my wife or kids name and take exemption u/s 80C in income tax

January 7, 2011 6:21 AM

mithun said:

No. To avail of the benefits under 80C for NSC, you must invest in your own name.

January 14, 2011 9:40 PM

pankaj kumar sinha said:

Can it be taken in spouse name & claim benefit like Insurance policy u/s 80C?


Pankaj Sinha

Mob: 09891537909

March 28, 2011 5:03 AM

Tapan said:

If I take a joint NSC for me and my wife. How exactly would the tax calculation done..??

April 19, 2011 4:30 AM

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