ITR Filing 2025’s deadline drawing near, filers are now double-checking Form 26AS, the Annual Information Statement (AIS), and the Taxpayer Information Summary (TIS) so that the income claimed on the return lines up with the records Deposit with the Income Tax Department. Missing or mismatched income can trigger doubts or delays.
A common pain point identified during the review season concerns the interest on National Savings Certificates (NSC). This small-savings product remains an attractive tool, not only for the guaranteed returns but for the deduction claim possible under Section 80C. Yet the way interest is treated for taxation purposes often leaves filers scratching their heads.
Taxpayers routinely see, within their AIS, interest accruing on their NSC holdings is flagged as “unpaid income.” This can lead to three pressing concerns:
- Is the interest that is marked as “unpaid” mandatory to report during ITR Filing for the assessment year 2025?
- In which section or schedule of the return should NSC interest actually be entered?
- What possible consequences follow if the amount in question is disregarded altogether?
In this post, I will unpack the matter in detail so that you can file without anxiety, confident that the return is both accurate and within the rules the Income Tax Department expects.
What is NSC, Anyway?
The National Savings Certificate, or NSC, is a savings plan sold at post offices that promises you a guaranteed return. It’s a government backed scheme, so you won’t worrying about your money. Plus, you can claim a tax deduction under Section 80C, which means some of your hard-earned cash is sheltered from tax.
How is NSC Interest Measured?
If you’ve ever got paid interest on a fixed deposit, you probably noticed small credits in your account every year. NSC does things a little differently. The interest is calculated every 12 months, but it’s not transferred to your account. Instead, it is added to your original amount, and the new total becomes the “principal” for the next year. Because of this trick:
- The annual interest gets added back in.
- You can still claim a Section 80C deduction for this added amount, which means it gets a little tax break, too except in the last year when the total interest is paid out.
- Keep in mind the interest still counts as “Income from Other Sources,” so don’t forget to include it on your tax return.
How is NSC Interest Taxed?
The main thing to understand is that you pay tax on interest you don’t physically see for a few years. The amount gets added to your income every year, so the actual interest is taxed on an accrual basis.
For the first four years of a typical five-year NSC account, the added interest is eligible for a deduction under Section 80C. This is your small silver lining.
The last year is different, though; the interest paid out at maturity can’t be claimed as a deduction, since it’s already the amount you’ll see in cash in your hand. So you report it and pay your tax, if any, on that final actual gain.
Why Is NSC Interest Labeled as “Unpaid Income” in Your AIS?
The Annual Information Statement (AIS) bundles data gathered by the Income Tax Department from multiple sources—banks, post offices, and other financial institutions—into a single, easy-to-read document.
For the National Savings Certificate (NSC):
- The interest is deemed earned each year, though the cash hasn’t moved—no payment made, cash-wise.
- The post offices communicate this nominal, yet accumulated, interest to the Income Tax database.
- Consequently, your AIS may show the NSC interest as “Unpaid Income.” This figure isn’t a free pass to ignore it; a clear reconciliation is mandatory the moment you file your Income Tax Return (ITR).
Steps to Report NSC Interest in the ITR Filing 2025
Here is the ordered process for handling your NSC interest while filing for FY 2024-25:
Step 1: Find Your Annual NSC Interest Accrual
Memory tip: Stick to the interest rate that was active when you bought your NSC the rate updates quarterly, so don’t use the most recent one if your purchase date was earlier.
You can locate the updated rates or earlier rates in published NSC interest schedules at your post office or on their site. List out the interest earned year-by-year.
Step 2: Verify AIS Data
Log onto the Tax Information Network via the Income Tax e-filing website.
Download your AIS for the year in question, and check the “Interest Income” entry for NSC.
Honey the data you derived in Step 1 with this tip. If there’s a difference, the post office needs prompting to correct their report.
Step 3: Input the Data in Your ITR Filing 2025
While filling out ITR 1, 2, 3, or whichever is applicable, locate the schedule for “Income from Other Sources.”
Under that, insert the figured annual NSC interest. Filing with the right data keeps your taxes compliant and smooth.
For the deductions section, mirror the earlier years’ figures under 80C, keeping the principal constant, except when you get to the last financial year’s return.
Step 4: Special Scenario – Last Year Maturity Payout
During the last year, the payout you actually receive equals the forthcoming principal double-check the cumulative interest that has accrued.
In terms of the tax return under 80C, you’ll note that the amount of last year principal plus total interest equates the payout, however, since you already deducted the principal, you will only show the last year’s interest as taxable.
Finally, pair this taxable amount with the figures listed in the tax account summary AIS to ensure everything reconciles.
Example Calculation (Practical Case)
Let’s say you invested ₹1,00,000 in an NSC with a five-year maturity at 7.7% annual compounding. Your annual interest income builds like this:
- Year 1 ₹7,700 : taxable, but you can also claim ₹7,700 deductible under Section 80C in the same assessment year.
- Year 2 ₹8,293 : taxable, deductible under 80C as before.
- Year 3 ₹8,933 : again, both taxable and 80C-deductible.
- Year 4 ₹9,618 : taxable and deductible under 80C.
- Year 5 ₹10,361 : taxable, but the ₹10,361 final interest is NOT deductible under 80C (80C only applies to the earlier four years).
On maturity, the maturity amount is ₹1,44,905. Your income tax return for FY 2024-25 will reflect the ₹10,361 in the Other Sources section, with the earlier years’ interest having been tallied in their respective assessments already. If your AIS (Annual Information Statement) shows ₹10,361 as the only unimputed income, you still need the ₹7,700, ₹8,293, ₹8,933, and ₹9,618.
Common Mistakes to Avoid in ITR Filing 2025
- Ignoring NSC interest in the AIS, which may mismatch the developer’s books and trigger an assessment notice.
- Claiming Section 80C for the final year, which is not applicable for the year-five interest.
- Relying solely on the maturity figure, NSC interest for each year must be entered sequentially in the return.
- Cross-verifying the AIS with your own year-wise ledger because randomly noting the maturity amount may result in discrepancies.
How Missing a Small Detail Can Come Back to Haunt You
If you skip reporting your NSC interest, as captured in the AIS, when you file your 2025 return, the result can be a flagged assessment at the CPC. The attached notice under Section 143(1)(a) might be a mismatch alert. The liability then could stretch into additional tax, interest, or penalties that escalate the workload, time, and stress involved. The simple takeaway is that staying compliant is no longer optional paperwork it is risk management.
Which Form to Use, and Where to Report in 2025
- ITR-1 (Sahaj) as a salaried person, the NSC interest is booked under “Income from Other Sources.”
- ITR-2 If you handle capital gains or other additional complexities.
- ITR-3 & 4, tailored for business and professionals, still slot NSC interest into the same “Other Sources” section, in a uniform approach. The 2025 return design might differ, but the compliance target does not.
Tips for Smooth ITR Filing 2025
- Before you file, grab AIS and TIS right from the tax portal—these frames correct for errors.
- Track your NSC interest in a separate chart that rolls yearly projections from the date of purchase. If any AIS figure is off, use the AIS portal to note your own calculation.
- When you meld 80C deductions, consider reinvested NSC interest along with the roof of limits for PPF, ELSS, and LIC.
- Finally, look for tax software that pulls the AIS figures directly into the right boxes; that reduces friction and the risk of human copy errors.
Conclusion
ITR Filing 2025 is just around the corner, and getting the NSC interest right is something you simply cannot skip. Here’s the quick checklist you need to stick to:
Add your NSC interest every year as “accrued income” under the “Other Sources” section. At the same time, claim the full amount under the Section 80C deduction until you reach the maturity of the NSC.
Pay extra attention to the AIS entries even if they say “unpaid income,” they still need to be acknowledged. By following these steps, you don’t just keep the income tax authorities happy; you save yourself from those annoying, time-consuming notices and avoid penalties.
Before you hit the big “Submit” on your ITR Filing 2025, double-check that the NSC interest is accurate and fully reported. Get this right today, and you’ll sleep a whole lot easier tomorrow.