The National Savings Certificate (NSC) remains one of the most popular small savings schemes for investors seeking a low-risk, government-backed investment option.
When stock markets are witnessing volatility and fixed deposit (FD) rates at many scheduled banks are low, NSC provides attractive interest rates to a lot of investors looking for a long-term investment option.
NSC interest rate
The current NSC rate of 7.7% is higher than the rates offered by many banks on their five-year fixed deposits. Since the interest rate is fixed for the whole duration when you invest in NSC, investors can easily figure out the amount they will receive on maturity after five years, no matter how interest rates change in the future.
What will a Rs 1 lakh investment in NSC give you after 5 years?
If you invest Rs 1 lakh in NSC at the current interest rate of 7.7% per annum, the investment will grow to approximately Rs 1,44,903 at maturity after five years.
Interest in NSC is payable at maturity (compounded yearly).
NSC maturity calculation for Rs 1 lakh investment
Amount Investment amount: Rs 1,00,000
Interest rate: 7.7% p.a.
Tenure: 5 years
Maturity value: Rs 1,44,903
Total interest earned: Rs 44,903
Does investing in NSC offer tax benefits?
Deposits in NSC qualify for a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act, for taxpayers opting for the old tax regime.
The same benefit is not available for those who have opted for the new tax regime.
Can an NSC account be transferred?
An NSC account can be transferred from one individual to another, subject to the condition that the transferee is eligible under the NSC scheme in the following cases, namely:
On the death of an account holder in case of a single account or all the account holders in a joint account, the amount will be transferred to the legal heirs or the nominees.
On an order of a court, on pledging, in the event of the death of any of the account holders in a joint account, the account will be transferred in the name of the surviving account holder or account holders.
NSC premature account closure rules
The account is not eligible for closure before maturity except in the following cases:
On the death of an account holder in a single account, or any or all the account holders in a joint account.
On forfeiture by a pledgee being a gazetted officer, when the pledge is in conformity with this scheme.
When ordered by a court.
NSC premature account closure interest payment rules
If you close an NSC account within one year of opening it, you will get back only the amount you originally invested. No interest will be paid.
- If you close an NSC account after one year but before completing three years, you will receive your principal amount along with interest at the rate applicable to the Post Office Savings Account for the period the account was held.
If you invest ₹1,00,000 in the National Savings Certificate (NSC) under the current locked-in interest rate of 7.7% per annum (compounded annually), your maturity details after the fixed 5-year tenure will be as follows:
Principal Investment: ₹1,00,000
Total Interest Earned: ₹44,903
Total Maturity Value: ₹1,44,903
Year-on-Year Growth Breakdown
Although the interest is only paid out as a lump sum at the end of the 5th year, it compounds annually.
Here is exactly how your ₹1 Lakh grows year by year: Year Opening Balance Interest Earned (at 7.7%) Closing Balance Year 1 ₹1,00,000 ₹7,700 ₹1,07,700 Year 2 ₹1,07,700 ₹8,293 ₹1,15,993 Year 3 ₹1,15,993 ₹8,931 ₹1,24,924 Year 4 ₹1,24,924 ₹9,619 ₹1,34,543 Year 5 ₹1,34,543 ₹10,360 ₹1,44,903 Key Rules & Tax Implications to Keep in Mind
Fixed Rate Assurance: Once you invest, your interest rate is locked at 7.7% for the entire 5 years.
Any future quarterly changes made by the government won't affect your ongoing certificate. 
Tax Benefits on Investment: The initial investment of ₹1 Lakh is completely deductible from your taxable income under Section 80C (applicable if you opt for the old tax regime).
Tax on Accrued Interest:
For Years 1 to 4, the interest earned is automatically re-invested into the scheme.
Because it is re-invested, this annual interest also qualifies for a fresh Section 80C deduction every year. In the 5th Year, the interest earned (₹10,360) cannot be re-invested because the scheme is maturing. Therefore, this final year's interest is fully taxable as "Income from Other Sources" according to your tax slab.
No TDS: The post office does not deduct any Tax Deducted at Source (TDS) on your maturity amount; it is up to you to declare the final year's interest in your ITR.
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