If you bought a National Savings Certificate, the interest is taxable every single year on an accrual basis, even though the post office pays you nothing until the 5th year, and there is no TDS, so the duty to declare it sits entirely on you.
NSC interest is taxed each year as Income from Other Sources, on accrual, with no TDS deducted. In the old regime, the interest reinvested in years 1 to 4 can be claimed under Section 80C, within the 1.5 lakh cap, while the 5th year interest is fully taxable. In the new regime, which is the default, there is no Section 80C, so the accrued interest is simply taxable each year.
The National Savings Certificate is a fixed-income small savings scheme sold at post offices across India. It has a 5-year lock-in, a minimum deposit of ₹1,000, and no upper limit. Interest is compounded annually but paid only at maturity. The interest rate is set by the Finance Ministry and reset every quarter.
For the quarter April to June 2026 (Q1 of FY 2026-27), the Finance Ministry kept the NSC rate unchanged at 7.7 percent, compounded annually. Because the rate is revised each quarter, always confirm the live figure before you invest. You can model the maturity value with the Post Office Return Calculator.
This is the part most people get wrong. The Section 80C trick only exists in the old regime. The new regime is the default and has no Chapter VI-A deductions.
There is no Section 80C in the new regime. So the interest reinvested each year gives you no deduction at all. The accrued interest is simply taxable each year as Income from Other Sources at your slab rate. You declare it, you pay tax on it, and you get nothing back for the reinvestment. Many people assume the 80C benefit is automatic. It is not. If you have opted for the new regime, that benefit is gone.
In the old regime, the interest accrued in years 1 to 4 is deemed reinvested into the certificate, and that reinvested amount can be claimed as a Section 80C deduction, subject to the overall ₹1.5 lakh ceiling for all your 80C items together.
But note the two legs. You still declare the accrued interest as income each year, and then you claim the same reinvested amount under 80C. It is a wash, not a tax-free exemption. The 5th year interest is not reinvested, so it gets no 80C deduction and is fully taxable.
So in the old regime, across the 5-year life:
In both regimes, there is no TDS on NSC, so nobody deducts tax for you. You must report it yourself.
Real-life example: Kashvi Pathak
Kashvi Pathak of Pune invested ₹1,00,000 in NSC in May 2026 at 7.7 percent. Each year roughly ₹7,700 and rising accrues as interest. She is in the new regime, so she gets no Section 80C deduction. She simply declares the accrued interest as Income from Other Sources every year and pays tax at her slab. Her cousin, on the old regime, invested the same amount and claimed the years 1 to 4 reinvested interest under Section 80C, within his 1.5 lakh cap, but still declared it as income each year and paid tax on the 5th year interest in full.
If a query arises on your NSC interest, a short factual note helps. Sample wording:
To the Assessing Officer, Subject: Treatment of NSC interest in my return for AY 2026-27 I hold National Savings Certificate purchased on [date] for Rs 1,00,000. The interest accrues annually and is reported by me under Income from Other Sources on an accrual basis. No TDS is deducted on NSC. For the years one to four, the reinvested interest has been claimed under Section 80C within the overall limit, as I am assessed under the old regime. The fifth year interest is offered fully to tax with no deduction. Kindly treat this as my explanation. Supporting computation is enclosed. [Name, PAN, date]
If a post office or bank refuses to share your interest record or scheme details, you can ask for it formally. Draft a request with the AI RTI Drafter and read your rights under the RTI Act 2005.
Every year, on an accrual basis, under Income from Other Sources. Even though the cash is paid only at the end of 5 years, you must declare the interest each year in your ITR.
No. There is no TDS on NSC interest. That does not make it tax-free. You are responsible for reporting the full interest and paying tax on it yourself.
No. The new regime is the default and has no Section 80C. So the reinvested interest gives you no deduction. The interest is simply taxable each year as Income from Other Sources.
Because the final year interest is paid out to you and is not reinvested into the certificate. There is no reinvestment to claim, so the 5th year interest is fully taxable in the old regime too.
No. In the old regime you still declare the accrued interest as income, then separately claim the reinvested portion under Section 80C, within the 1.5 lakh cap. It offsets but does not exempt.
For April to June 2026, the Finance Ministry kept NSC at 7.7 percent, compounded annually and paid at maturity. The rate is reset every quarter, so confirm the live figure before investing.
Under Income from Other Sources. In the old regime, you additionally enter the reinvested interest for years 1 to 4 in the Section 80C field of Chapter VI-A.