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National Saving Certificates (NSC): Income tax rules on interest explained

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I had purchased National Saving Certificates (NSC) worth Rs. 80,000 in 2019-2020. I never claimed deduction for the interest accrued on NSC under Section 80C as I did not include the accrued interest in my income in the past. Can I claim the interest on NSC in this financial year 2022-2023? If I do not claim any interest till maturity, does the full accumulated interest become taxable? At maturity can I claim the full interest as income and claim deduction under Section 80C?

Answer: A tax payer can claim deduction in respect of investments made by him, in National Saving Certificates (NSC) in the year of investments, under Section 80 C within the overall limit of Rs. 1.50 lakh. The interest accrued on NSC is fully taxable and can be offered for tax either on accrual basis or the same can be offered for tax on receipt basis in the year of maturity which needs to be done on consistent basis year after year. Since you have not offered the interest in the past on accrual basis, you cannot do so for the current financial year and you have to now offer the same for tax on receipt basis in the year of maturity basis.

In case the interest is offered for tax on accrual basis year after year, the accrued interest is deemed to have been reinvested in the NSC and one can claim deduction for the accrued interest for the year under Section 80 C in all the years except the year in which the NSC matures. 

Since you would be offering the interest for tax in the year of maturity, you cannot claim any deduction under Section 80 C in the year in which the NSC matures and you will have to pay full tax on the interest received at the time of maturity.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.

 

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