NSC 5-year maturity.
Maturity (5 years)
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Your breakdown
Updates live as you type| End of year | Balance | Interest that year |
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A sovereign-backed five-year certificate
The National Savings Certificate is a small-savings instrument sold at post offices and many banks, carrying the full backing of the Government of India. The current version, NSC VIII issue, has a fixed five-year term. You invest a lumpsum, the interest compounds annually, and you receive principal plus accumulated interest on maturity. The rate is reviewed by the finance ministry every quarter; this calculator defaults to 7.7%, the recent rate, and lets you change it. There is no upper limit on investment, the minimum is 1,000, and certificates come in multiples of 100.
How the maturity is built
The calculation is simple annual compounding: maturity equals the amount invested times one plus the rate, raised to five. Unlike a monthly-income scheme, NSC pays nothing during the term; the interest is locked in and rolled up. That reinvestment is what gives NSC its quiet tax trick, which I will come to below.
Investing 1.5 lakh at 7.7%
Put in 1.5 lakh, exactly the 80C ceiling, at 7.7% for five years. Here is how it grows year by year.
You get back 2,17,355, of which 67,355 is interest earned over five years. The bars show the climb.
The reinvested-interest 80C loophole
NSC interest is taxable as income from other sources, and it is not paid out, so it accrues each year. Here is the elegant part: the interest accrued in years one through four is deemed reinvested into the NSC, and that reinvested interest itself qualifies for a fresh 80C deduction in the year it accrues, under the old regime. So your initial 1.5 lakh gets 80C in year one, and the roughly 11,550 of interest in year one can be claimed again in year two, and so on. Only the final year’s interest, which is paid out at maturity, does not get reinvested and is therefore fully taxable with no offsetting deduction. Declare the accrued interest each year and you can largely neutralise the tax. Note this benefit is an old-regime feature; under the new regime there is no 80C, so the interest is simply taxable.
NSC or a five-year tax-saver FD?
Both are five-year, 80C-eligible, lump-sum products. NSC usually edges ahead on rate, and its government backing is arguably safer than a bank FD, which is insured only up to 5 lakh under DICGC. The reinvested-interest 80C trick is unique to NSC. A tax-saver FD, by contrast, lets you choose a monthly or quarterly interest payout if you want income. For a pure 80C parking spot where you do not need interim cash, I lean NSC.
Can I break an NSC early or use it as collateral?
Premature encashment is allowed only in narrow situations, the death of the holder, forfeiture by a pledgee, or a court order, so treat the five years as a genuine lock-in. You can, however, pledge an NSC as security for a loan from a bank, which is handy if you need liquidity without surrendering the certificate.