How NSC works
The National Savings Certificate (VIII Issue) is a 5-year post office savings bond. You buy it once, interest compounds every year, and everything is paid at the end. There are no regular payouts. The rate is fixed when you buy, currently 7.7% for July–September 2026.
Maturity = P × (1 + r)^5Worked example
The tax twist: reinvested interest
NSC interest is taxable, but it has a quirk that helps old-regime taxpayers. Each year's interest (for the first four years) is deemed to be reinvested, so it qualifies for the ₹1.5 lakh investment deduction as a fresh investment, which cancels out the tax on it. In year one, that deemed reinvestment would be ₹7,700 in this example.
You still need to show the accrued interest as income every year. The final year's interest is not reinvested, so it is fully taxable. Under the new regime there is no deduction, so all the interest is taxable.
NSC compared with similar options
| Scheme | Rate (July–September 2026) | Lock-in | Interest taxed? |
|---|---|---|---|
| NSC | 7.7% | 5 years | Yes, but deemed reinvestment helps under the old regime |
| 5-year post office TD | 7.5% | 5 years | Yes |
| PPF | 7.1% | 15 years | No |
| Tax-saver bank FD | Varies by bank | 5 years | Yes |
NSC suits someone who wants a guaranteed 5-year return with no upper limit on the amount. It can also be pledged as security for a bank loan.
Who NSC suits best
NSC works well for conservative savers who want a known result in five years and don't need regular income. Old-regime taxpayers who haven't used the full ₹1.5 lakh investment deduction get the most from it, because both the investment and the yearly reinvested interest count toward the limit. In the new regime the interest is simply taxable, so compare it with a 5-year FD or post office time deposit on a post-tax basis.
Frequently asked questions
Can I withdraw NSC before five years?
Only in special cases: death of the holder, forfeiture by a pledgee, or a court order. It is otherwise locked for the full term.
Is there a limit on NSC investment?
No upper limit, though the investment deduction is capped at ₹1.5 lakh a year under the old regime.
Where can I buy NSC?
At any post office, and online through India Post internet banking for eligible accounts.
Official references: National Savings Institute – NSC · India Post