Want to save on taxes? Learn how to claim deductions on your National Savings Certificate

The National Savings Certificate is a five-year sovereign savings certificate issued by India Post. Investment qualifies for Section 80C deduction up to ₹1.5 lakh per year under the old tax regime. Interest is compounded annually and paid at maturity. The accrued interest in years one to four is treated as deemed reinvestment and qualifies again for Section 80C in the year of accrual, making it tax-neutral. The final year's interest is fully taxable as Income from Other Sources.

Mayank Wadhera

Published: 3 Feb 2023

Updated: 16 May 2026

4 min read

The National Savings Certificate (NSC) is a sovereign-backed five-year savings certificate issued by India Post under the small savings programme of the Government of India. For FY 2026-27, NSC remains a strong Section 80C plank in the old tax regime, with the bonus of a clever reinvestment-of-interest mechanism that makes the intermediate annual interest effectively tax-neutral. Whether you are a salaried taxpayer topping up 80C, a parent saving for a child's college fees, or a conservative saver seeking capital protection, NSC deserves a serious look.

Basics of NSC VIII Issue

Issued by India Post; available at any post office branch.
Tenure: fixed 5 years from the date of purchase.
Minimum investment: ₹1,000; no maximum limit; in denominations of ₹1,000, ₹5,000, ₹10,000.
Interest rate: notified quarterly by the Ministry of Finance.
Compounding: annual; payable at maturity along with principal.
Holdings: single, joint up to three adults, minor through guardian.
Mode: physical certificate or electronic mode through India Post Savings Account.

Section 80C deduction on investment

Amounts invested in NSC qualify for deduction under Section 80C up to the aggregate annual ceiling of ₹1.5 lakh, alongside other 80C investments. The deduction is available only under the old tax regime. Salaried taxpayers can claim the NSC investment as part of their TDS declaration to their employer, reducing in-year tax outflow. Self-employed taxpayers claim it directly while filing the ITR.

The reinvestment trick on interest

Interest on NSC is compounded annually and accumulates in the certificate, paid out only at maturity. The accrued interest each year (for years 1 through 4) is treated as deemed reinvestment and therefore qualifies afresh for Section 80C deduction in the year of accrual. Practically, you report the accrued interest as Income from Other Sources and claim the same amount under Section 80C, making it tax-neutral if you have 80C headroom. Only the final year's interest (year 5) is taxable in full without reinvestment benefit.

Worked example

Assume you invest ₹50,000 in NSC at the start of FY 2026-27 at a notified rate of, say, 7.7 per cent compounded annually. Year 1 interest of about ₹3,850 is added to the certificate. You report ₹3,850 as Income from Other Sources and also claim ₹3,850 under Section 80C — net tax impact is nil. The same treatment applies in years 2, 3, and 4. In year 5, the final year interest is fully taxable. Total maturity value: approximately ₹72,500.

Reporting in the ITR

Claim the year-of-purchase investment under Section 80C, within ₹1.5 lakh ceiling.
Track annual accrued interest using the India Post NSC interest chart.
Each year of accrual (1-4), declare interest under Income from Other Sources and claim the same under Section 80C.
In the final year (5), declare interest under Income from Other Sources with no 80C offset.
Retain the NSC certificate and a workings sheet showing year-wise accrual and 80C claims.
On maturity, declare the maturity payout under Schedule EI for the principal portion already taxed.

Premature encashment and nomination

NSC cannot generally be encashed before five years, except in case of death of the holder, court order, or forfeiture by a Gazetted Government officer holding it as pledge. Nomination is allowed at the time of purchase or later through prescribed application. Transfer between persons is permitted only in defined circumstances such as gifting under specified conditions or pledging.

Comparing NSC with PPF and ELSS

NSC's 5-year lock-in is shorter than PPF's 15-year tenure and longer than ELSS's 3-year lock-in. NSC interest is taxable (with 80C reinvestment relief); PPF interest is fully tax-free; ELSS LTCG is taxed beyond the annual exemption threshold. NSC is sovereign-backed with no market risk; ELSS has equity volatility. Use NSC for conservative 80C top-up; use PPF for ultra-long-term tax-free growth; use ELSS for higher real returns over a 5-7 year horizon.

Conclusion

NSC is the workhorse of the conservative 80C taxpayer — sovereign comfort, predictable yield, neat reinvestment-of-interest tax trick, and a 5-year horizon that fits many life goals. Stack it alongside PPF and ELSS for a balanced 80C portfolio under the old regime, and shift to alternatives if you migrate to the new regime.

Frequently Asked Questions

How much tax can I save with NSC under Section 80C?

NSC investments qualify for Section 80C deduction up to ₹1.5 lakh per year, aggregated with other 80C instruments. For a taxpayer in the 30 per cent slab, this can save up to ₹46,800 in tax in the year of investment, subject to the overall 80C ceiling and choice of the old tax regime.

Is NSC interest taxable every year?

Yes, NSC interest is taxable as Income from Other Sources on accrual basis. However, since it is reinvested in the certificate for years 1 to 4, the accrued interest qualifies afresh for Section 80C deduction in the same year, making it tax-neutral if 80C headroom is available. The final year's interest is fully taxable.

What is the lock-in period of NSC?

NSC has a fixed maturity of five years. Premature encashment is allowed only in specified circumstances — death of holder, court order, or forfeiture by Gazetted Government officer holding it as pledge. Otherwise, the certificate must be held to maturity to claim the full interest payout.

Can I claim NSC deduction under the new tax regime?

No. Section 80C deduction on NSC investment is available only under the old tax regime. Under the new tax regime, which is the default for FY 2026-27, no 80C benefit is allowed. NSC investment under the new regime functions purely as a savings vehicle on its yield merit.