Most of the taxpayers is known to that the Interest of NSC is Non Taxable or it may relief from Tax U/s 80 C, but as per the Income tax Rules the Interest of NSC is not entitled to any tax relief in any Income Tax Section and the Interest of NSC is Fully Taxable Income. If the Employees or Tax payers can re-invest as NSC then can get the benefits U/s 80C.
Deposits up to Rs.1.5 lakh in NSC qualify for Deduction Section 80C of the Income Tax Act. Accrued interest on NSC also qualify for deduction u/s. for first five years.
NSC interest is taxable. However, as it is a cumulative scheme (e.g. interest is not paid to the investor but instead accumulates in the account), each year’s interest for the first 5 years is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. Only the final year’s interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the earlier years and the capital amount.
Five things to know about National Savings Certificate
1) The National Savings Certificate (NSC) is eligible for tax deduction under Section 80C for an investment of up to Rs 1 lakh. One can invest in five- or 10-year NSCs.
2) The interest on the NSC is fixed in April every year. The current rate is 8.5% for five years, and 8.8% for 10 years.
3) The interest accumulated every year can be deducted from Rs 1.5 lakh invest in that year for saving tax, as it is considered to be invested for this purpose.
4) The interest is taxable, but since it can be reinvested as part of Section 80C investment, it makes NSC an attractive option.
5) Investors have to keep an account of the interest received each year and ensure that the overall investment, including the interest, is in the Rs 1.5 lakh limit.