What is National Savings Certificate (NSC)?
National Savings Certificate (NSC) is a fixed-income investment scheme offered by the Government of India through Post Offices. It is one of the safest investment options backed by sovereign guarantee, making it ideal for risk-averse investors looking for guaranteed returns with tax benefits.
NSC is particularly popular among salaried individuals and senior citizens who want to save tax under Section 80C while earning a competitive interest rate. The current NSC interest rate for Q4 FY 2025-26 (January to March 2026) is 7.7% per annum, compounded annually but payable at maturity.
Key Features of NSC
- Interest Rate: 7.7% p.a. (compounded annually, paid at maturity), reviewed quarterly by the government.
- Lock-in Period: 5 years from the date of investment.
- Minimum Investment: ₹1,000 and in multiples of ₹100 thereafter.
- Maximum Investment: No upper limit (but 80C benefit capped at ₹1.5 lakh).
- Tax Benefits: Investment qualifies for deduction under Section 80C.
- Nomination: Facility available for naming a beneficiary.
- Transferability: Can be transferred from one person to another or one post office to another.
- Loan Collateral: Can be pledged as security for taking loans from banks.
How is NSC Interest Calculated?
NSC uses the compound interest formula with annual compounding. The interest is compounded every year and added to the principal, but the entire amount (principal + interest) is paid only at maturity after 5 years.
Where:
- A = Maturity Amount
- P = Principal (Investment Amount)
- r = Annual Interest Rate (7.7% = 0.077)
- n = Number of Years (5 years for NSC)
Example: For ₹1,00,000 investment at 7.7% for 5 years:
A = 1,00,000 × (1 + 0.077)^5 = 1,00,000 × 1.4485 = ₹1,44,850
NSC Tax Benefits Explained
NSC offers attractive tax benefits under the Income Tax Act:
- Section 80C Deduction: Investment up to ₹1.5 lakh qualifies for tax deduction.
- Interest Reinvestment Benefit: Interest earned in years 1-4 is deemed to be reinvested and qualifies for 80C deduction (even though no new certificate is issued).
- Year 5 Interest: Only the 5th year interest is fully taxable as it is not reinvested.
- No TDS: No Tax Deducted at Source on NSC interest.
NSC vs Other Small Savings Schemes
| Feature | NSC | PPF | 5-Year FD |
|---|---|---|---|
| Interest Rate | 7.7% | 7.1% | 6.5-7.0% |
| Lock-in Period | 5 years | 15 years | 5 years |
| Tax on Interest | Taxable | Tax-Free | Taxable |
| Max Investment | No Limit | ₹1.5 Lakh/yr | No Limit |
Who Should Invest in NSC?
- Conservative Investors: Those seeking guaranteed returns with government backing.
- Tax Savers: Individuals looking to claim Section 80C deduction.
- Fixed Income Seekers: Those who prefer predictable returns over market-linked instruments.
- Medium-Term Goals: Investors with 5-year financial goals.
- Senior Citizens: Safe investment option for retirement corpus (though SCSS offers better rates for seniors).
Frequently Asked Questions (FAQs)
What is the current NSC interest rate in January 2026?
The NSC interest rate for Q4 FY 2025-26 (January to March 2026) is 7.7% per annum, compounded annually. The government reviews small savings scheme rates every quarter.
Can I buy multiple NSC certificates?
Yes, you can buy multiple NSC certificates. There is no limit on the number of certificates or total investment amount. However, tax benefits under Section 80C are capped at ₹1.5 lakh per financial year.
What happens if NSC holder dies before maturity?
In case of the holder's death, the nominee or legal heir can either claim the maturity amount immediately (premature encashment) or continue the certificate till maturity. Interest is paid till the date of death or maturity, whichever is applicable.
Can NRIs invest in NSC?
No, NRIs cannot invest in NSC. Only resident Indians can purchase National Savings Certificates. If an NSC holder becomes an NRI, they can continue holding the certificate till maturity.
How do I claim 80C benefit on NSC interest?
The interest earned in years 1-4 is deemed to be reinvested in NSC. You can claim this accrued interest as fresh investment under Section 80C. This effectively means your total 80C deduction includes both the principal and the reinvested interest (subject to ₹1.5 lakh limit).