# How to show interest on NSC in Income Tax Return?

**How to show interest on NSC in Income Tax Return?**

One of the best ways to save income tax u/s 80C is investing in National Saving Certificates. NSC can be purchased from the post office, which has 5 years tenure. While you can claim this amount from 80C exemption, interest from NSC is taxable. It needs to be shown as taxable income while filing income tax return. However, there is a lot of confusion about how to show NSC interest in income tax return. In this article, I would provide you the ways on how you can show Interest on NSC in ITR.

**What are National Saving Certificates?**

If you are already aware of complete features, skip this section. One can invest in NSC, which can be purchased from the post office and these can be claimed as deduction u/s 80C up to Rs 1.5 Lakhs. The National Saving Certificates are available in the denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs. 10,000. The investor can purchase any number of certificates of any denomination. It is used as a big tool used by income tax assesses to reduce their tax burden. It is important to note that Hindu Undivided Family (HUF) and trusts are not allowed to invest in this scheme.

**Also Read: Complete guide on National Saving Certificate (NSC)**

**How are the interest rates of NSC?**

The interest rates provided by the NSC are at par with the other fixed interest earning instruments like Public Provident Fund. Interest rate for Apr-16 to Jun-16 is 8.1%. It provides higher interest rates compared to post office FD or bank FD’s. NSC has 5 year lock-in period. You cannot withdraw the amount before that maturity period. This is the reason its interest rate is higher than the savings account.

**How interest is calculated in NSC?**

The interest accrues on the yearly basis, but deemed to be reinvested. At the end of the maturity period, the interest so received from the NSC is liable for the payment of tax according to the tax slab of the individual. However, most of the assessee is often mistaken by not showing the interest earned on the NSC in their annual income tax return. The annual interest earned on the NSC has to be shown on your income tax return.

**How tax planning can be done through NSC and how to show it income tax return?**

The principal amount invested in the NSC is deductible under Sec. 80C together with other tools like insurance premiums, PPF contributions, tuition, fees, housing loan principal amount repayment, etc. but the limit is Rs 1.5 lakh. So, if you desire to invest some fresh money in NSC, do take into consideration other **tax saving investments**.

Take an illustration (1) – if an employee has a basic pay of Rs. 36,000 per month, 12% of it, i.e. 4000 is contributed towards EPF. The annual figure comes to 48,000. The employer will also be paying 48,000 towards his EPF. So, his total becomes 96,000. That year, he makes a fresh investment of 70,000 in NSC. But, he can avail the exemption till 54,000 only as he has hit the upper limit of Rs 1.5 Lakhs and an eligible exemption of Rs. 16,000 could not be availed under Sec. 80C.

Illustration (2) – you invest Rs. 20,000 in Feb. 2014 for FY 2013-14. You have Rs. 50,000 has EPF deduction and paid 10,000 as LIC premium, so you can claim the deduction of 80,000 under Sec. 80C. If you can invest Rs 70,000 in NSC, you can claim the full amount of Rs 1.5 Lakhs u/s 80C. This amount can be shown in the income tax return ITR-1 in part C – Deductions and Taxable Total Income.

**How Interest on NSC is calculated?**

The interest on NSC is calculated annually on a compounded basis. It means that you have to calculate interest not only on the principal but also on the interest received so far. So, the interest is to be calculated for the first period, add it to the total and then calculate the interest for the next period.

Let me explain with an example. If you invest Rs 1,0000 in NSC, your interest is Rs 810 (10000 x 8.1%). However, your principal amount for a second year is Rs 10,810 (Rs 10,000 + 810). Interest of 8.1% is computed on Rs 10,810 which is Rs 876. See the illustration table below for the entire 5 years for interest rate of 8.1%.

**How to show NSC Interest in Income Tax Return?**

Interest earned from NSC is taxable in the hands of the assesse though tax is not deducted at source.

There are three ways to show the interest earned from NSC.

**Method 1** – you show the interest earned under the category of Income from Other Sources as well as Deduction on NSC under Sec 80C every year. See the below illustration on how it works.

**Method 2** – You claim deductions for interest earned on NSC in the year for deduction, but, you don’t show it as income. In this case, the entire interest income will be counted as income in the last year.

**Method 3 –** you don’t claim the interest earned in for the deduction and you don’t mention it as income. In this case, the entire interest amount will be counted as an Income from Other Sources in the last year, but only first four years will be counted as a deduction.

**Also Read: Latest Interest Rates on Small Saving Schemes / Post office schemes**

It is important to note that one should stick to a single method during the entire tenure of his investing in NSC. One should not change the method of showing the interest in income tax returns and claiming exemptions.

Method 1 is the best way to show the NSC interest as it distributes the income all through the years and the tax liability does not accumulate for the last year.

**Conclusion: **National Saving Certificates have been used as an important tool by the assessee to reduce their taxable income. But, there are few points attached to it. One should keep those points in mind to avail the maximum reduction.

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**Suresh
How to show NSC interest in Income Tax Return**

I bought nsc few years back which is getting matured this year.I have neither shown the accrued interest in my previous return nor claimed the same as deduction till my previous return.So on the maturity date should I show the only the 5th year interest under income under other source or show the total interest and claim 80 c deduction for first 4 yr interest or is it that I cannot claim 80 c deduction for the first 4 yrs since I have not shown the accrued interest in my previous 4 yrs return .

If I am following the third method. i.e showing the whole 5years interest collectively. And lets say I was under 10% tax slab for first 4 years and in 5th year I came under 20% tax slab. Then isn’t there a loss, As there will be 20% tax on the last four year interest where as actually it should be 10%.

Is there a way to rectify the same.

Hello, I ve invested 130000/- in NSC on 15/2/2018. So my doubt is whether I ve to show the NSC interest earned from 15/2/2018 to 31/3/2018 in ITR for 2017-18 financial year?

Or after completion of one year, I ve to declare interest of NSC in next year ITR?

I have invested 60000 rupees in NSC in 02/2017.it will matured on 02/2022 with Maturity amount of 88160 rupees. As per ur method shown,if I follow method 3,as per ur instruction last year interest will be taxable.but in my case last year interest will be 6531 which is less than 10000.so i don’t think any loss of income I will face.

No Ranjeet. If you have invested Rs 60,000 and you are getting Rs 88,160, the difference of Rs 28,160 should be shown as “Interest from other sources”. However, you can claim first 3 years interest as exemption u/s 80C (if not claimed fully). You are talking about net taxable income which is less than Rs 10,000 which is not applicable here. You need to show gross amount and claim separately u/s 80C for first 3 years

In the above document it’s mentioned 5 year tax saving can be shown if follow method 1.if method 3 then only 4 years we can get benefit.I don’t understand what is the logic behind it.

I am a pensioner.For the Financial year 2017-18 I have already hit the limit of 150000 under 80c and no benefit of reinvestment amount of previous year NSC.I will be putting all the interest income reflected in 26AS while filing returns for 2017-18.

If I include the interest income from NSC taken in 2016 in ITR1 the total amount shown under income from interests exceeds that shown in 26AS. No place to show NSC income separately. Can the total interest income shown in returns be more than that in 26AS ?

yes it can be shown..if there is tax liability you have to pay