Is interest from Kisan Vikas Patra or NSC taxable, and how do I report it in my ITR?

Kisan Vikas Patra (KVP) and the National Savings Certificate (NSC) are two of the most well-liked government-backed small savings schemes. Both provide guaranteed returns, although interest earned on them is subject to taxation.

However, not all of these schemes enjoy the same tax treatment. Because the investment is eligible for a Section 80C deduction, the interest generated is tax-free, and the maturity funds are also tax-free, PPF and SSY offer the maximum tax benefit. On the other hand, interest earned on investments in NSC, SCSS, and the 5-year Post Office Time Deposit is taxable, even though these schemes are eligible for a Section 80C deduction.

A Section 80C deduction is not available for Kisan Vikas Patra, the Post Office Monthly Income Scheme (POMIS), the Post Office Recurring Deposit (RD), or Post Office Time Deposits with terms of one, two, or three years.

How should NSC and KVP interest be reported in your ITR?

Interest earned from both NSC and KVP should be reported under the 'Income from Other Sources' head while filing your income tax return.

Taxpayers have the option to declare NSC, KVP interest either on an accrual basis or on a receipt basis. However, once chosen, the method should be followed consistently every year.

"Interest from Kisan Vikas Patra or NSC is taxable, and taxpayers can offer NSC or KVP interest either on an accrual basis or on a receipt basis, but the method has to be followed consistently year after year," says Balwant Jain, a Mumbai-based tax and investment expert.

However, the tax treatment of the two schemes differs.

According to CA Abhishek Soni, CEO and Co-founder of Tax2Win, "the interest accrued on NSC every year (except in the year of maturity) is deemed to be reinvested and can also be claimed as a deduction under Section 80C, subject to the overall limit of ₹1.5 lakh. In the year of maturity, however, the final year's interest is taxable and does not qualify for the deduction."

Experts also advise taxpayers to check the interest reflected in their Annual Information Statement (AIS) before filing their ITR and ensure that it matches their own records to avoid any mismatch.

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