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
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Sir, I have invested in NSC a sum of Rs.10 lacs on 27-12-2021. How I have to show in the ITR for deduction under 80C? And for how many years can we claim this 2 lacs as deduction? or do we have to purchase every year NSC for 1.5 lacs to claim deduction? Pl reply.
Sir, I have invested in NSC a sum of Rs.2 lacs on 03-02-2021. How I have to show in the ITR for deduction under 80C? And for how many years can we claim this 2 lacs as deduction? or do we have to purchase every year NSC for 1.5 lacs to claim deduction? Pl reply.
Hi Suresh, In the example,it is mentioned that both employee and employer contribution towards provident fund is eligible under section 80 C.But only employee contribution is eligible under section 80C.
Sir, how I will get the TAN no of Post office for ITR purpose to show in other income.
Hello,
I invested in NSC in April 2019 but did not show interest as income or claimed any deductions in 2020 i.e. AY 2020-21. Now, can I do it for AY 2021-22? If so, should I consider only 20-21 year or for 2 years total? Please advise.
Thanks in advance.
I would suggest you to stick only one one method. Since you have not declared in year-1, going for method-1 from 2nd year would create confusion. Go for method-2
Thank you very much for quick and clear response.
The interest earned in last year (5th year) in all methods is taxable as it is not reinvested.
5th year just completed on March 2021 and I have not shown NSC interest in ITR to date.
For the FY 2020-21 and 2021-22, I already have an investment of 1.5 lakhs.
So I believe even if I show it in this year’s IT returns I don’t get any tax benefits or reduction.
Is it possible to show this interest for FY 2022-23 as other income?
or Is there any other way I can get the tax benefits on the NSC interest for all the 5 years?
please advise me how to claim deduction on nsc interest.
Mobile num pl
Pramila, You can provide your query, I would be able to advice further
How can i get the NSC interest certification online to show as Tax Proof during the tenure?
You cannot get it online. You need compute based on NSC certificate what you are holding
I have done investment in NSC JAN-2020.
but, I didn’t get any tax that year. So can I show that to this financial year. Because I did not used that last year.
No Ramesh. You can claim only when you have invested during that financial year
Thank you ji
HI ,My doubt is if i have invested money in NSC in fy-2020 to 2021 ,can i show in ITR for 5years as it NSC is for 5 years?
You can claim income tax exemption u/s 80c only in the financial year in which you have invested
Does it mean we need to consider interest for proportinate period.
Thank you sir. Got the answer here I were looking for.
Very good article but many had asked same question as mine in previous comments. So please reply.
“I ve invested 100000/- in NSC on 04/12/2019. So my doubt is whether I ve to show the NSC interest earned from 04/12/2019 to 31/3/2020 in ITR for 2019-2020 financial year?
Or after completion of one year, I ve to declare interest of NSC in fy 2020-2021 ITR?
Harry, Income accrued during the year should be shown in that year ITR irrespective for how many months or days you would have got it. In this case whatever is NSC interest accrued for 2019-2020, you need to show it in ITR.
Suppose I buy NSC in the middle of FY 20-21. What should be the 80C deduction to be claimed in next FY, ie, 21-22 for the same. Will it be Principal*Interest Rate fully or will it be a portion of it?
Sachin, If you invested in FY20-21, in next year FY21-22, you can claim only the interest received from NSC as 80c exemption.
Sir, I have invested in NSC dated 09/09/2019. Now while submitting proof for the FY 2020-21, whether i have to select interest accrued on NSC and enter the amount as deposited amount dated 09/09/2019 or the total interest that is accrued and divide it by 5.
Eg if the total matured interest is 1 lakh after 5 years , so when we divide it by 5 we get 20k and whether this 20 k is the amount to be entered in amount column under interest accrued on NSC
Dear Sir, You have suggested three methods to include NSC income in IT Return. However, other websites related to the same matter say that we have to show the NSC income in one way only and that is on yearly basis. There is no mention of showing the NSC interest of all the five years collectively. Could you please let me know whether your method no.-3 is under some IT rule . Thanks and regards. A. Singh
Hello Singh, This is the practice and not as per IT rule. There are many tax experts who has been advicing this which is acceptable. Here is an example. https://tax2win.in/guide/nsc-national-savings-certificate
Dear Sir, Many thanks for your prompt reply. My only point was that as per the practice, we pay tax on sum of (i) interest earned and (ii) Interest accrued. NSC interest is not paid to us every year but should be covered under “Interest Accrued”. Suppose we pay the Income Tax on fifth year of NSC on total interest of all five years of a particular NSC then would it be acceptable to IT department or can he raise an objection as to why we have not added interest on yearly basis.
I do hope you would reply soon, thanks and Regards, A.Singh
Hi, The ideal process is to show as per point no.1 and 2. If it is missed for some reason, you can show them as per method-3. There is no option for you too. This is accepted method as you are showing by the time you are receiving on other side.
Sir .. it is wrong way of calculation….
Why? What do you think should be right way then?
Hi Sir..
In the First Method, the interest earned for the 5th Year Rs 1106 is shwon u/s 80c. But where as for the fifth year, the interest would not be invested since it is going to be withdrawn.. Then how can we show it in 80/c as it is not invested. For the first 4 years it is ok, but for fifth year, the interest earned should not be shown as reinvested and hence it should not be claimed u/s 80c. Similarly in the second method also..
And next… in the third method, the interest earned for first four years has been claimed u/s 80c. But as of my knowledge, it should not be like that. Only the fourth year interest can be claimed u/s 80c, because previous years investments cannot be claimed u/s 80c in this current year..
Thanks for your article. I am a pensioner. I have bought NSCs on 19.1.15 for Rs 110,000 and it is going to be matured on 19.1.2020. Will I be showing it the interest accrued for the 4th year?
2. May I get the table for NSCs purchased during the year 2015-16, 2016-17, 2017-18?
3. Interest accrued will be shown for 4 years or all the 5 years?
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?
same question please reply!!!
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
Dear Sir
I invested in NSC on 1st January 2018. Do I need to show the interest accrued till 31st March 2018 while filling the ITR (i.e of 3 months ) or on yearly basis i.e. Jan to Jan.
Dear Sir
I invested in PPF on 01 January. I need to show interest accrued on every 31 March (i.e. in this year ITR, i vl show 3 months interest as income ) or after completion of a year i.e. Jan to Jan. Pls guide
I have started an NSC for 10000 on 1st January 2018. So do I need to show the interest accrude till 31st March 2018 while filling the ITR or when I should start showing my accrude Interest
In NSC, annual interest is reinvested every year until maturity. Can interest from other small Savings Schemes in Post Office, if REINVESTED, exempt from IT till maturity period of the product under question.
No Kumar. That option not available for other saving schemes
Sir,
I had bought nsc totally for Rs.60,000(Rs.10,000 from April 2014 to Sep 2014).Claimed the principal amt Rs.60,000 for the yr 2014-2015.Failed to claim interest from 2015 to 2018.Now for the current year how to claim interest under 80C.Apart from NSC,has LIC for Rs.40628,PPF Rs.12,000 and EPF Rs.21,600.Also how to show interest under which head? Advance thanks for ur reply.
You have to show interest in head:Income from other sources:in which you should also add saving account interest incurred from bank.As you have not claimed interest in last 3 years and not shown it as income also ,its better you claim it in next year i.e 2019-2020 as explained in method 3. Showing full interest as income and last 4 year interest as deductible under 80c, so for next year you can save 1.50 minus interest you got from NSC. hope its clear
Nice article. Thank you sir.
Thank you
I have submit every mnth 35000 in nsc. its means 420000 in a year..its my fellowshp.. then any money deduct at the time of maturity ..not fill incme tax still
Sir,
If I invest rupees 10000 in NSC and get interest of rupees 810 in first financial year,
Then please clarify whether 10000+810=10810 amount is to be shown in 80c or 10000 in first financial year?whereas 810 is to be shown in income from other sources.
suppose I bought NSC of 100000 on 10th June 2015. Should I calculate interest starting from 11th June till 31st march for the FY2015-16?
Thats correct jitsen
I'm one come under 30%tax liability. I did not show nsc interest for last five years. Now nsc encashed and got Rs 25000/interest for last 5/6 years. In which head I should enter? Is it true that my Rs2500/will go for tax?
Sir,
I invested in NSC in July 2016.
I would like to show interest income on accrual basis (spread out)
So my first year interest accrues in July 2017. So do I show it as income for FY 2017-18?
or do I need to calculate the interest from July 2016 – Mar 2017 and show that as income for FY 2016-2017?
Thanks,
Sir
I have already invested 150000 in ppf, 200000 in nsc. I And in the previous year I have invested some 200000 in nsc.
Shall I report all the above investments in 80C along with accrued interest on nsc and claim deduction up to 150000. Please clarify.
Geetha. Yes. You can claim upto Rs 1.5 Lakhs though you have invested more amount..
The interest accruing annually but deemed to be reinvested under Section 80C of IT Act.
Lets say I have invested complete 1.5 lac in NSC and declared U/S 80C of IT Act.
if I get an interest of 1200 (any random amount not as per actual calculation), but how can I claim it U/S 80C because the complete amount of 1.5 Lac is invested and utilised and now there isnt any scope to declare or show the NSC interest of 1200 U/S 80C.
So please let us know whether my thinking is correct or still I can claim it U/S 80C and also show it under "Income from Other source" and can take benefit of the same.
All these numbers are just for reference and not from any actual calculation but just wanted to make sure that if we have already invested the completed 1.5 lac amount U/S 80c then can we still claim the NSC interest U/S 80C anc get the benefit of the same.
Positive response, highly appreciated.
sir
i purchased nsc worth rs. 100000 on 30-3-2016. Plz tell me tax treatment of nsc interest and how to show it in return.
I have additional saving of 150000.
thanks
What would be the treatment in Books of accounts of for NSC Interest.
Please let me know how interest compounded in post office deposits. Previously I knew it was calculated half yearly basis. Now whether it is either half yearly or yearly in NSC VIII issue for 5 years tenure. As per agent NSC of Rs. 10000.00 gives Rs. 14761.00 on maturity. Is it correct ?
Hi Ghosh, Interest on NSC is computed annually. The maturity amount indicated is correct
Sir, I have purchased NSC VIII Issue of Rs. 20000/- on 06.06.2016. how i calculate Accrued interest on NSC for 06.06.2016 to 31.03.2016 and 01.04.2016 to 31.03.2017.
Hi Suresh, Good explanation for interest. I got NSC amount after maturity. Now where to show this maturity amount in ITR?
Prady, Like any other interest income, it needs to be shown in “Other Income”
thanks for the detailed elaboration suresh
Thank you Maithili
Hi Suresh, Does the PPF interest (that credits on 31st March) be used for 80 C exemption, please advise.
Yes, you can claim it.
Hi SUresh,
Is there a provision to claim the PPF annual interest amount in 80c?
Thank you,
Ganesh
No Ganesh. Only NSC interest can be claimed
A good guiding article to show the interest from NSC in IT returns. Is it applicable to other investments like bank fixed deposits( which are eligible for deduction under 80 c) ? One more doubt is if deduction is claimed under 80c, such investments are, I believe, supposed to be locked in for 3 years. In that case is it still allowed to claim deduction for interest reinvested from3rd year onwards , under 80c? Thank you for a lot of information.
No Srinivasan. It does not apply for other investment options interest. You are claiming from NSC where it is already locked.
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Nice article. Thank you.
Hi Suresh ji.
Thanks for the wonderful article
I guess in your illustration of EPF, you said that 48000 contribution of employee and 48000 contribution of employer both come under 80cc. But I guess only employee’s contribution is exempted Am I wrong?
Akshay, Entire PF amount invested comes u/s 80C exemption.