National Saving Certificate - Tax treatment on Maturity Amount!

The National Savings Certificate popularly referred to by its acronym NSC is a post-office savings scheme. NSC is a good medium term investment option.

National Saving Certificate - Tax treatment on Maturity Amount!

The contributions you make to NSC qualify for section 80C deduction up to Rs. 1 lakh. Subsequently, even the interest that accrues every year and gets reinvested qualifies for 80C deduction and also note that Interest received on maturity (last year) will not eligible for rebate u/s 80 C. However, on maturity, the interest income is taxable as per respective slab of individual.

At the end of NSC maturity period there will not be any tax liability on the Principal amount invested. Interest earned from NSC is taxable. Interest on NSC is taxable under the head 'Income from other sources'.

  

Interest accrued every year is liable to tax (you can include that every year on accrual basis to your income as income from other sources). However, interest is also deemed to be reinvested and thus eligible for section 80C deduction. It is conceded by the Board Circular No. 405 dated January 15, 1985 (1985) 151 ITR (St.) 48, that the interest accretion for each year (as indicated in the certificate) can be treated as reinvestment in the same NSC, so that interest which has to be offered for tax can be claimed as deduction under Sec. 80C, subject to the overall ceiling of Rs.1 lakh under Sec. 80C along with other savings. Presumably the new ten-year NSC will also qualify for deduction under Sec. 80C, if notified, with the same treatment for interest.

Now two situations we discuss here:

1. When you declare the interest from NSC on yearly basis
2.  When you don’t declare the interest from NSC on yearly basis, but consider entire amount at the time of maturity

When you declare the interest from NSC on yearly basis

It is advisable and even allowed that we can declare the interest from NSC on yearly basis even though interest is deemed to be reinvested and more so considered as fresh purchase and we get benefit under section 80C (deduction from 80C), So, over the period of six years, you could declare the interest income for each year, thus it does not amount to a huge sum at the time of maturity.

When you don’t declare the interest from NSC on yearly basis

If you do not declare the interest on an accrual basis, then the entire interest earned would accumulate in the year of maturity. You could then claim it under Section 80C, but it would be a huge amount and would be taxable at the current applicable tax rate.

Interest income is taxable at the respective slab rate of the individual.

How to find Interest rate of NSC check this calculator….

NSC interest rate calculator

Also refer this
http://the-analytical-mind.blogspot.in/2013/01/how-to-file-nsc-interest-for-income-tax.html