What NSC is
The National Savings Certificate is a five-year deposit sold at post offices. The government sets its rate every quarter and guarantees it, and unlike a bank FD there is no upper limit on the guarantee. You invest once, nothing is paid out along the way, and after five years you get the deposit and all the interest back together. For people in the old tax regime, it is one of the simplest ways to use the ₹1.5 lakh deduction without market risk.
NSC at a glance
| Interest rate | 7.7% a year (July–September 2026), compounded yearly |
|---|---|
| Paid | All at maturity, with the deposit |
| Term | 5 years |
| Investment | ₹1,000 minimum, in multiples of ₹100, no maximum |
| Who can buy | Adults, jointly by up to three adults, or for a minor |
| Tax | Deposit and years 1–4 interest deductible in the old regime; interest taxable |
How ₹1,000 grows
Interest is added to the certificate at the end of each year, and the next year’s interest is worked out on the new total:
| Year | Interest on ₹1,000 | Value at year end |
|---|---|---|
| 1 | ₹77.00 | ₹1,077.00 |
| 2 | ₹82.93 | ₹1,159.93 |
| 3 | ₹89.31 | ₹1,249.24 |
| 4 | ₹96.19 | ₹1,345.44 |
| 5 | ₹103.60 | ₹1,449.03 |
The tax detail most people miss
NSC interest is paid only at maturity, but it can be counted as income in each year it is earned. The rules treat the interest for years one to four as reinvested in the certificate, and a reinvestment counts as a fresh deposit for the ₹1.5 lakh deduction under the old regime. So if you declare the interest each year and still have room in your deduction, the tax on it largely cancels out.
For a ₹1,50,000 certificate at 7.7%, the interest treated as reinvested over the first four years adds up to ₹51,815. The fifth year’s ₹15,540 is paid out, not reinvested, so it is simply taxed. Under the new regime there is no deduction at all, and NSC is then just a safe five-year deposit whose interest is taxed.
NSC or the alternatives?
- 5-year post office time deposit: also qualifies for the deduction, but pays interest out every year, so the interest does not count as reinvested.
- PPF: pays 7.1% and the interest is tax-free, but the money is locked in for 15 years.
- Tax-saver bank FD: five-year lock-in and a deduction, but the bank’s deposit insurance covers only ₹5 lakh per bank.
For money you might need back sooner, see the Kisan Vikas Patra, which can be cashed after two and a half years.
Frequently asked questions
What is the NSC interest rate?
The National Savings Certificate (VIII issue) pays 7.7% a year for July–September 2026, compounded yearly and paid with the deposit after five years. Every ₹1,000 becomes about ₹1,449.
Is the NSC rate fixed once I buy it?
Yes. The rate on the day you buy the certificate applies for all five years, whatever the government announces in later quarters. Certificates bought in different quarters can earn different rates.
How is NSC interest taxed?
The interest is taxable, but it is paid only at maturity. You can show each year’s interest as income as it accrues. For the first four years, that interest is treated as reinvested, so it also counts towards the ₹1.5 lakh deduction under Section 80C (now Section 123) in the old regime, which cancels most of the tax. The fifth year’s interest is taxed with no matching deduction.
Can I withdraw NSC before five years?
Generally no. A certificate can be cashed early only if the holder dies, if a court orders it, or if a bank holding it as security for a loan claims it. Plan on the money being locked for the full five years.
Is there a maximum limit for NSC?
No. You need at least ₹1,000, then any amount in multiples of ₹100. Only ₹1.5 lakh a year counts for the tax deduction, though, and PAN and proof of the source of funds are needed for large amounts.
Can I take a loan against NSC?
Yes. Banks and some lenders accept NSC as security. The certificate is pledged to the lender and released when the loan is repaid.
Sources
- National Savings Institute – National Savings Certificate (VIII issue)
- Department of Economic Affairs – small savings interest rates
- Income Tax Department – Acts, Rules and circulars
Last updated 21 September 2026. Results are estimates for planning only and are not investment, tax or legal advice. See our disclaimer.