Is NSC interest taxable?

Yes, NSC interest is taxable, but with a unique twist. The interest earned in years 1 to 4 is automatically reinvested back into the certificate and also qualifies for Section 80C deduction in that year (within the overall ₹1.5 lakh cap). The interest earned in the 5th year is paid out at maturity along with the principal and is taxable as 'Income from Other Sources' at your slab rate. Post Office does not deduct TDS, but you must declare it in your ITR.

Can I prematurely withdraw NSC?

NSC has a strict 5-year lock-in. Premature withdrawal is allowed only in very limited cases: death of the certificate holder, forfeiture by a pledgee who is a Gazetted Government Officer, or on the order of a court of law. In all other situations, the funds remain locked until maturity. You can, however, pledge the certificate to a scheduled bank as collateral for a loan.

NSC vs PPF — which is better?

NSC and PPF serve different goals. NSC has a fixed 5-year tenure with a higher headline rate of 7.7% (Q1 FY26-27) but the maturity interest is taxable. PPF has a longer 15-year lock-in at 7.1% but enjoys EEE (Exempt-Exempt-Exempt) tax treatment — fully tax-free interest and maturity. NSC is better for a medium-term goal with assured returns; PPF is better for long-term tax-free wealth building. Many savers use both within their ₹1.5 lakh Section 80C budget.

Can I claim Section 80C on auto-reinvested NSC interest?

Yes. The accrued interest in years 1 to 4 of NSC is treated as a fresh investment in that year and is eligible for Section 80C deduction. This is a unique feature among small-savings schemes. The total Section 80C deduction (across NSC interest, principal, PPF, EPF, ELSS, life insurance premium and other eligible instruments) is capped at ₹1.5 lakh per financial year. The 5th-year interest does NOT qualify because it is paid at maturity rather than reinvested.

NSC Calculator — National Savings Certificate Maturity

NSC

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NSC Calculator

Calculate maturity amount for the 5-year National Savings Certificate (NSC) with the current 7.7% annual compounding rate. Shows year-by-year interest accrual and the Section 80C deduction available on principal + auto-reinvested interest.

Reviewed by the CalculatorKosh Editorial TeamUpdated June 2026Free · No sign-up

NSC Details

Investment amount

₹

₹1 K₹10 Cr

Min ₹1,000 · No upper limit

Interest rate (per annum)

5%12%

Current Q1 FY26-27 rate: 7.7%

Your tax slab

Tenure is fixed at 5 years by NSC scheme rules.

Drag sliders to explore different scenarios

Interest Rate7.7%

5%12%

What-If Maturity Amount

₹2,17,355

Maturity Amount

₹2,17,355

(after 5 years at 7.7% annual compounding)

Total Interest

₹67,355

Initial 80C Saving

₹30,000

Year-5 Interest Tax

₹3,108

Net Post-tax Maturity

₹2.1 L

80C reinvestment quirk

Years 1-4 interest is auto-reinvested and also qualifies for Section 80C in that year. Year 5 interest is paid at maturity and is taxable as Income from Other Sources.

Extra 80C save (yrs 1-4 interest)

₹10,363

Year-5 interest (taxable)

₹15,540

Real-world 80C benefit depends on your other 80C usage (PPF, EPF, ELSS, life insurance, home-loan principal).

Year-by-year: opening balance vs interest accrued

Year-by-year breakdown

Year	Opening	Interest	Closing	80C reinvest
Y1	₹1,50,000	₹11,550	₹1,61,550	✓
Y2	₹1,61,550	₹12,439	₹1,73,989	✓
Y3	₹1,73,989	₹13,397	₹1,87,387	✓
Y4	₹1,87,387	₹14,429	₹2,01,815	✓
Y5	₹2,01,815	₹15,540	₹2,17,355	✗

Ratio: 31.0% of maturity is interest

Drag sliders to explore different scenarios

Interest Rate7.7%

5%12%

What-If Maturity Amount

₹2,17,355

How It Works

The National Savings Certificate (NSC) is a small-savings instrument issued by India Post and authorized banks. It has a fixed 5-year tenure, sovereign backing, an interest rate of 7.7% per annum (Q1 FY 2026-27, reviewed quarterly by the Ministry of Finance), and qualifies for Section 80C deduction up to ₹1.5 lakh per year. Interest is compounded annually and automatically reinvested back into the certificate for years 1 to 4.

NSC maturity formula

A = P × (1 + r)⁵

Where P = investment amount, r = annual rate (decimal — 7.7% → 0.077), and the exponent 5 is the fixed tenure. At 7.7% the maturity multiplier works out to ≈ 1.449, so ₹1,00,000 grows to ≈ ₹1,44,914 over 5 years.

The 80C reinvestment quirk

NSC has a quirk that most savers miss: the interest accrued in years 1, 2, 3 and 4 is treated as a fresh investment in those years and qualifies for Section 80C deduction (within the overall ₹1.5 lakh annual cap shared with PPF, EPF, ELSS, life insurance, home-loan principal, etc.). The 5th-year interest is paid out at maturity along with the principal and is fully taxable as "Income from Other Sources" — there is no TDS but you must declare it in your ITR.

NSC vs other small-savings schemes

NSC sits between a tax-saver Fixed Deposit (5-year lock-in, lower rate, fully taxable interest) and the PPF (15-year lock-in, EEE tax-free interest). Many savers use NSC for medium-term goals where they want assured returns and a 5-year horizon; the auto-reinvestment quirk effectively recycles the interest back into the 80C bucket each year. NSC can also be pledged to a scheduled bank as collateral for a loan if you need liquidity without breaking the lock-in.

Frequently Asked Questions

The NSC interest rate is 7.7% per annum compounded annually for Q1 FY 2026-27. The rate is reviewed and announced by the Ministry of Finance every quarter. The rate at the time of purchase is locked in for the full 5-year tenure of that certificate — even if the rate changes later, your certificate continues at the original rate until maturity.