Difference in Sec 80C tax break on interest on NSC

Explore the 2023 changes and differences in Sec 80C tax breaks for interest on NSC. Find out if interest on NSC is eligible for 80C deductions and optimize your financial planning.
3 mins
18 August 2023

If you have idle cash at hard or are looking for investment options while availing tax benefits, you can opt for Fixed Deposits (FD) or National Savings Certificate (NSC).NSC is a small savings instrument offered at post offices, that combine tax savings with assured returns. FD is a financial instrument, offered by banks and other financial institutes, providing investors higher interest rates than simple saving account, until the pre-decided, date to maturity.

  • A fixed lock-in period. Currently NSCs have a lock-in period of 5 years while for FDs you can choose the tenure for which you wish to invest, ranging anywhere between 7 days to 20 years.
  • Income earned is fixed, as the rate is interest remains constant throughout the tenure. This is true for both NSCs as well as FDs.
  • Low risk, as NSCs and FDs both are highly secured investment providing fixed income, they involve almost non-existent risk.
  • Investments made in both NSCs and FDs are eligible for tax exemption under section 80C, upto Rs.1.5 lakh.
  • NSCs as well as FDs do not have any upper limit for investment, however, the tax exemption is capped at Rs. 1.5 lakh. Interest on both the schemes is chargeable on a yearly basis.

Now coming to the differences between NSCs and FDs -

  • Government has fixed the NSC ROI at 6.80% per annum while banks and other financial institutions provide FD interest rates ranging between 6% to 8.2%.
  • Senior citizens are provided slightly higher rate of interest in case of FDs; however, no such facility is extended in case of NSCs.
  • Interest on NSCs is compounded on yearly basis and do not have the option of regular interest payout, whereas interest on FD can be compounded on a monthly, quarterly, half-yearly, as well as annual basis.
  • NRIs cannot avail the benefits of NSCs, they can hold FD accounts in banks and other institutes.
  • FD interest is subject to TDS, but TDS is not deducted from interest arising out of NSC, so it is the however the customer’s responsibility to pay the applicable tax.
  • NSCs do not provide any premature withdrawal facility, other than reasons like - death of the holder, forfeiture of scheme by a gazetted government officer, scheme withdrawn by court order. But FDs offer premature closure in exchange for a nominal fee.

However, the most important differentiation between NSCs and FDs remains the fact that interest earned from NSCs are TDS free. Whereas interest acquire from FDs are subject to TDS if interest earned per annum exceeds Rs. 10,000 in case of banks and Rs. 5,000 in case of other financial institutions. But if the investor’s PAN card is not provided the TDS will be deducted at 20%. To claim refund of higher TDS deduction, you need to file income tax returns.

Please Note: This article shares information about tax saving FDs. Bajaj Finance Fixed Deposit is not a tax saving FD.

Calculate your expected investment returns with the help of our investment calculators:

Investment Calculator
SIP Calculator FD calculator SDP calculator Gratuity Calculator

Frequently Asked Questions

Is the NSC interest rate fixed?

Yes, the interest rate on National Savings Certificates (NSC) is fixed at the time of purchase and remains unchanged throughout the investment tenure.

Is interest on NSC taxable?

Yes, the interest earned on NSC is taxable, but it qualifies for deductions under Section 80C of the Income Tax Act, up to a certain limit.

Is NSC a good investment?

NSC can be a good investment for individuals looking for fixed returns with government backing and tax benefits, but it may not offer the same flexibility and liquidity as other investment options.

Is there a lock-in period with investment in NSC?

Yes, there is a lock-in period for NSC, which varies based on the type of NSC certificate purchased.

Which is better NSC or PPF?

The choice between NSC and Public Provident Fund (PPF) depends on your financial goals. NSC offers fixed returns, while PPF provides long-term savings with tax benefits and higher flexibility.

Payable option for the purchase of NSC?

NSC can be purchased in cash, or through a savings account, or by issuing a post-dated cheque to the post office.

How to show NSC interest in income tax return?

The interest income earned from NSC should be declared in the "Income from Other Sources" section of your income tax return, and you can claim deductions as per the tax laws.

Show More Show Less


As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.