Understanding Tax Deductions of NSC Investments

Hello and welcome to Part 17 of the income tax education series brought to you by H&R Block, the global leader in filing income tax returns. Today we will understand whether you can get a tax deduction on NSC investments?

The answer is Yes. Investment in National savings certificate or NSC is eligible for a deduction under section 80C. This deduction is available up to Rs. 1.5 lacs under the total limit of section 80C deductions. Interest received each year on NSC is required to be declared in your Income tax return under the head ‘Income from other sources’. The interest accrued each year on NSC gets automatically re-invested each year in the account and hence can be claimed as an investment under section 80C each year. Hence the interest becomes tax free. The only interest that you cannot claim as a deduction is the interest for the last year which does not get re-invested but gets paid to you. E.g. Geeta invests Rs. 20,000 in NSC and gets an interest @8.5% per year. In the first year the interest amount @8.5% on Rs. 20,000 which comes to Rs. 1,700 will be shown as income from other sources and then this same amount of Rs. 1,700 will be deducted as investment in NSC under section 80C. Hence these amounts will cancel out each other. However in the last year when the NSC matures the amount of interest does not get re-invested and hence in this year the interest that you receive on NSC will be taxable as income from other sources.

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