Deposits up to Rs 1,50,000 in NSC qualify for deduction under Section 80C of the Income Tax Act.
The accrued interest on NSC also qualifies for a deduction under the section.
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 is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Section 80C.
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.
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NSC: National Savings Certificate