NSC-Accrued Interest taxation and way to reduce it.

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• Dear Basu,

  This method of accruing is only helpful only in the old tax regime if i understand correctly for those people who have selected the new tax regime they cannot use this method for them they have two options.
  1) Calculate what is the interest amount earned at the end of each year and then pay the tax according to your slab.
  OR
  2) At maturity pay the tax for the entire interest amount earned throughout the 5 years.

  Your views on this is greatly appreciated.

  • Yes the NSC accrued will only apply to old tax regime I think Basu you need to update the article.

    • Dear John,
      Let me check. However, this article I think I wrote in around 10 years back :)

  • Dear Siddesh,
    Both the methods mentioned by you are available in old and new regime.

• Dear Basu,
  I needed clarification as i recently watched one YouTube video zeroda varsity kannada where they mentioned that ONLY the 5th year interest amount earned is taxable i.e. it should be added to “Income from Other Source” and the first 4 years interest earned amount is not taxable.
  If this is true then it makes a good proposition for me compared to FD's as I am in 30% bracket and the overall post tax interest rate just reduces to 7.2% from 7.7%.
  I hope what my understanding is correct.

  Thank You

  • Dear Ramesh,
    The taxation rules depeneds on which system you are opting. Whether you are declaring on yearly basis or at maturity. Both can be possible. But saying 4 years interest is tax free is WRONG.

• i have invested Rs. ..............in several NSC's at different time. this year AIS reflects interest amount of each NSC though they are yet to mature. since i am filing iTR under new tax regime . how can i defer the tax liability on the interest until the maturity of the NSC. plz guide at the earliest

  • Dear Jannat,
    As I mentioned above, you can ignore the interest accrued on yearly basis and can show it during the maturity.

• Excellent information, concerns are understood so easily.

  • Dear Mehul,
    Thanks.

• A Post office NSC matured in FY 2021-22.(NO TDS) I have been paying tax on accrued income every year for the last 4 years. However PO has reported the entire 5 year Interest on AIS for FY 21-22. 1. Can I use AIS feedback "Information related to other years" and assign the last 4 years interest to those years?

  2. I see I can only assign to past 5 years or future 5 years. What to do for KVP which has maturity of more then 9 years. How to assign to 6 or 7 years in the past?

  • Dear Ganesh,
    For NSC you can do so. For KVP, where does the tax saving will come into picture?

• Sir I had bought NSC which has been matured..I have been showing the interest earned in it since 3 years in income from other sources by calculating it myself...but this year the whole maturity interest is been shown in the AIS ...now can I file the itr this time too in the same way and make corrections in the AIS ...for just the 5th year...and can be exempted from the tax on the income for the last 4 years....or I have to give tax as they have provided

  • Dear Nishant,
    You have to show the total interest income of last year of NSC as an income. Yes, you can correct it as in your case you are showing the interest income on yearly basis while filing ITR.

• Dear Sir,

  I did not show my NSC income in ITR till maturity. Now it is showing in AIS on ITR website and whole interest of 5 years is being taxed in 2020-21. Can I claim relief under section 89 and show interest of 1st 4 years as arrear?

  • Dear Sanket,
    Sadly you can't.

• I has FD in bank which is to mature in 21-22 financial year. Bank has shown the interest accrual and tax paid in for 16A of 20-21. I want to know weather I could skip this in my income tax return and show the earning in whole in 21-22 when it will be matured.

  • Dear Dibakar,
    You can show both ways.

• Dear sir,
  I invested rs 3.5 lakh in July 2020 in NSC. If I want to claim yearly deduction of interest then in which f/y ITR return will i claim my 1st year interest deduction. F/y 20-21 or f/y 21-22 return? And shall I claim interest from July20 to june21 or I have to calculate interest from July 20 to March 21 and so on?

  • Dear Udit,
    You can't claim earlier interest now (if you not filed ITR). Regarding the ITR form, I don't know what are your income sources. Hence, hard for me to suggest a particular form.

• 1) I have various investments on cumulative basis - On which TDS is not applicable ( Like Post office ) - Can i offer tax on maturity of investment instead of annual accrual ?
  2) While cumulative investment on which TDS is applicable - i will pay tax on accrual basis as per my 26AS - is it correct to follow both above at the same time ?

  It maybe noted that I donot use any of the interest accrual for 80 C benefit rather i invest 1.5L seperately in PPF for 80C.

  3) Further , when do i need to pay tax in case of GOI (2018) cumulative bonds ( they will deduct TDS at one go after 7 years at the time of maturity )

  Kindly advise on all or some of the query above. Thanks.

  • Dear Vishnu,
    1) Opt the one which is comfortable or beneficial for you. There is no hard rule.
    2) If you are showing on yearly basis as income, then even though they deduct the TDS on maturity amount, you can show the last year's interest as income and calm the TDS amount back (if any refund).
    3) At maturity.