The National Savings Certificate is a savings bond issued by the Government of India, available at any post office. It carries a fixed interest rate declared by the government, a 5-year maturity, and qualifies for a Section 80C deduction. It is one of the simplest safe-investment options for Indian taxpayers.
Key features
| Feature | Detail |
|---|---|
| Minimum investment | Rs 1,000 (multiples of Rs 100) |
| Maximum investment | No upper limit |
| Tenure | 5 years |
| Interest rate | Government-notified quarterly; recently around 7.7% |
| Compounding | Annual, but paid at maturity |
| Tax deduction | Section 80C up to Rs 1.5 lakh (old regime) |
How interest works
Interest is compounded annually but is not paid out each year. Instead, it accumulates and is paid along with the principal at the end of 5 years. This means you do not receive any cash flow during the holding period.
For example, Rs 1,00,000 invested at 7.7% for 5 years grows to approximately Rs 1,44,900 at maturity, all paid as a lump sum.
The interesting tax angle
Here is the detail most people miss: the interest that accrues each year is taxable as income in that year, but the accrued interest for years 1 through 4 is also eligible for re-investment as a fresh Section 80C deduction. Only the interest accruing in the final year is purely taxable without any 80C offset.
This creates a partial loop: you claim 80C on the original investment, then claim 80C again on the interest deemed reinvested in subsequent years, up to the Rs 1.5 lakh ceiling each year.
NSC vs PPF vs FD
| Feature | NSC | PPF | FD |
|---|---|---|---|
| Lock-in | 5 years | 15 years | Flexible |
| Interest rate | ~7.7% | ~7.1% | 6-7% (varies) |
| Tax on interest | Slab rate (with 80C offset) | Exempt | Slab rate |
| Maturity taxation | Taxable | Exempt | N/A |
| Section 80C | Yes | Yes | Yes (5-yr tax-saver FD) |
NSC offers a higher rate than PPF with a much shorter lock-in, but PPF's tax-free interest makes its after-tax return competitive for those in higher tax brackets. An FD offers liquidity but no special tax advantage.
Who should consider NSC
- Taxpayers in lower tax brackets who benefit more from the higher pre-tax rate than the tax-free status of PPF.
- Investors who want a defined 5-year savings commitment with a government guarantee.
- Those who have exhausted their PPF contribution limit and want additional Section 80C instruments.
NSC can be bought at any India Post branch or through internet banking with select banks. No demat account is required.
Compare growth projections with our FD calculator and PPF calculator.