NSC Interest Tax: ITR Declaration and 80C Accrual - citizen guide 2026

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:

1. Years 1 to 4: accrued interest is taxable AND claimable under Section 80C, within the 1.5 lakh cap.
2. Year 5: accrued interest is taxable, with no 80C offset.

In both regimes, there is no TDS on NSC, so nobody deducts tax for you. You must report it yourself.

1. Work out the interest that accrued during the financial year. Apply 7.7 percent (or the rate fixed when you bought it) to the running balance, compounded annually.
2. Open your ITR and go to the Income from Other Sources schedule.
3. Add the accrued NSC interest under Income from Other Sources.
4. If you are in the old regime, also enter the reinvested interest for years 1 to 4 under the Section 80C field of Chapter VI-A, keeping the total 80C claim within ₹1.5 lakh.
5. If you are in the new regime, do not enter anything under 80C. Just report the interest as income.
6. In the maturity year, declare the final 5th year interest as income, with no 80C claim.
7. Cross-check that you have not missed any earlier year, because the interest is taxed on accrual, not only at maturity.

1. Your NSC certificate or the post office passbook showing the deposit and date.
2. The applicable NSC interest rate for the quarter you invested in.
3. A simple year-by-year accrual working, so each year matches your ITR.
4. Form 26AS and the Annual Information Statement, to reconcile with any reported figures.
5. Your post office account statement, if held in electronic form.

1. Declaring all the interest only in the maturity year. It is taxed every year on accrual under Income from Other Sources.
2. Assuming the 80C reinvestment benefit applies in the new regime. It does not exist there.
3. Forgetting that the 5th year interest gets no 80C deduction and is fully taxable.
4. Treating the 80C claim as making the interest tax-free. You still declare the income; 80C is a separate deduction within the 1.5 lakh cap.
5. Thinking no TDS means no tax. There is no TDS, but the interest is fully taxable and the reporting duty is yours.

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.

1. Finance Ministry small savings rate for Apr to Jun 2026, via Business Standard: https://www.business-standard.com/finance/personal-finance/nsc-holds-at-7-7-for-june-quarter-stays-ahead-of-most-5-year-fds-126042801112_1.html
2. National Savings Institute, Ministry of Finance: https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=132
3. Cleartax, NSC interest rate and 80C treatment: https://cleartax.in/s/nsc-national-savings-certificate
4. TaxGuru, NSC taxability and investment benefits: https://taxguru.in/income-tax/national-savings-certificate-taxability-investment-benefits.html
5. Nangia and Co LLP, 80C on NSC accrued interest: https://nangia.com/despite-no-investment-you-can-still-get-section-80c-income-tax-deduction-if-you-invested-in-nsc/

1. Post Office Return Calculator
2. AI RTI Drafter
3. The RTI Act 2005
4. The RTI Playbook