Among all the government-backed savings instruments available at India Post, the National Savings Certificate (NSC) has one of the most interesting tax structures — and one that most investors overlook. Not only does the amount you invest qualify for a Section 80C deduction, the interest it earns each year is considered to be automatically re-invested, and that re-invested interest also qualifies for Section 80C. In other words, a single NSC investment can give you Section 80C deductions in multiple financial years.
By the numbers: The National Savings Certificate currently earns 7.7% p.a. (2025), compounded annually and payable on maturity, with the investment deductible under Section 80C. Source: National Savings Institute.
NSC at a glance
| Feature | Detail |
|---|---|
| Interest rate | 7.7% p.a. (2025), compounded yearly |
| Tenure | 5 years |
| Minimum investment | ₹1,000 (no upper limit) |
| Tax benefit | Section 80C on investment |
"NSC has a neat quirk — the interest reinvested each year (except the final year) itself qualifies for a fresh 80C deduction, so do not forget to claim it." — CA Juber Attar, TaxFetch e-CA Tax Expert
This TaxFetch guide covers what NSC is, how interest works, who can invest, and how the "double deduction" mechanism actually plays out.
What is NSC?
The National Savings Certificate is a fixed-income, small-savings instrument issued by the Government of India through India Post offices. You buy a certificate by depositing money for 5 years. At the end of 5 years, you receive your principal plus all accumulated interest in a single payment.
The key characteristics are:
| Parameter | Detail |
|---|---|
| Issuer | Government of India through Post Office network |
| Interest rate (Q1 FY 2025-26) | 7.7% per annum, compounded annually |
| Minimum investment | ₹1,000 (in multiples of ₹100 thereafter) |
| Maximum investment | No upper limit |
| Section 80C deduction | Up to ₹1.5 lakh per year |
| Maturity period | 5 years (fixed; no extension) |
| Risk | Sovereign-backed; zero credit risk |
How NSC interest compounds — and the double 80C benefit
NSC interest is compounded annually, which means interest is added to the principal at the end of each year. The standard formula gives the following growth on a ₹10,000 investment at 7.7%:
| Year | Opening Balance | Interest @ 7.7% | Closing Balance | Can claim interest as 80C? |
|---|---|---|---|---|
| Year 1 | ₹10,000 | ₹770 | ₹10,770 | Yes — deemed re-invested |
| Year 2 | ₹10,770 | ₹829 | ₹11,599 | Yes — deemed re-invested |
| Year 3 | ₹11,599 | ₹893 | ₹12,492 | Yes — deemed re-invested |
| Year 4 | ₹12,492 | ₹962 | ₹13,454 | Yes — deemed re-invested |
| Year 5 (maturity) | ₹13,454 | ₹1,036 | ₹14,490 | No — taxable at maturity |
Because NSC interest is deemed to be re-invested (not paid out during the tenure), you can claim it as a Section 80C deduction in the year it accrues — for Years 1 through 4. Only the Year 5 interest is taxable at maturity because it is actually paid to you rather than re-invested. This is a meaningful benefit: a ₹10,000 NSC gives you 80C-eligible amounts across 5 financial years, not just one.
Who can invest in NSC?
- Any resident individual Indian citizen — adults and minors (through a guardian).
- Can be bought as a sole account, for a minor, or as a joint account with another adult.
- HUFs and Trusts cannot invest in NSC. However, the Karta of an HUF can invest in NSC in their personal name.
- NRIs cannot buy new NSC. An existing NRI who bought NSC while resident can hold till maturity.
Documents required
- Identity proof: Aadhaar / PAN / Passport / Voter ID / Driving Licence.
- Address proof: Aadhaar / Utility bill / Ration card.
- Duly completed NSC application form (Form NC-1 for fresh purchase).
- Photographs (two recent passport-size).
How to buy NSC — physical and digital
At the Post Office (physical passbook)
- Visit any India Post office with Form NC-1 and KYC documents.
- Submit the form, documents and deposit amount (cash / cheque / DD).
- Receive a passbook recording your certificate details. NSC is no longer issued in physical paper form (discontinued in 2016); it is passbook-based.
Online through India Post Payments Bank (IPPB)
Registered IPPB mobile banking users can buy NSC online under "DOP Products" without visiting a post office, subject to IPPB-linked savings account availability.
Nomination, transfer and premature closure
- Nomination: A nominee can be designated at account opening or any time before maturity. Nominee receives the proceeds on the death of the certificate holder.
- Transfer: NSC can be transferred between post offices across India and between joint holders. A transfer between two individuals (non-joint) is not normally permitted except in specific circumstances (court order, death of holder).
- Premature closure: Normally not allowed before 5 years. Allowed only in case of: death of the certificate holder (including joint holder), forfeiture by a pledgee (court order), or order of a court of law. No premature closure for personal financial reasons.
NSC vs PPF vs Tax-Saver FD
| Feature | NSC | PPF | 5-yr Tax-Saver FD |
|---|---|---|---|
| Rate | 7.7% | 7.1% | 6.5–7.5% |
| Lock-in | 5 years | 15 years | 5 years |
| Tax on interest | Taxable (but Years 1-4 re-invested interest qualifies for 80C) | Tax-free (EEE) | Taxable at slab rate |
| Upper limit | None | ₹1.5L/year | ₹1.5L (80C limit) |
Frequently asked questions
Can I pledge my NSC against a bank loan?
Yes. NSC can be pledged as collateral for a loan from a bank or financial institution. The bank places a lien on the passbook till the loan is repaid. You continue to earn interest on the NSC during this period.
Is NSC interest shown in Form 26AS?
Generally no — India Post does not deduct TDS on NSC interest and does not report it to the Income Tax department in the same way banks do. However, you are still legally required to declare the accrued interest (Years 1-4, as re-invested) in your ITR each year under "Income from Other Sources" — and simultaneously claim it under 80C as re-invested NSC.
Can a minor invest in NSC?
Yes, a parent or legal guardian can buy NSC on behalf of a minor. The certificate is issued in the minor's name with the guardian as the account operator. The 80C deduction can be claimed by the guardian.