INCOME FROM CLOSING OF NSS -1992 -EXEMPT UNDER WHICH SECTION

The principal that you will receive back when your account is closed is tax free, because any money paid into the NSS has already been deducted when you filed your taxes, using form 80C. However, all of the interest earned is subject to taxation, at "Other Sources Income", unless you have previously reported it for taxation on an accrual basis, then you will not have to pay tax again.

Thus, there are no specific exemptions provided for the withdrawal of the principal from NSS. Only the interest will be subject to taxation.

Thanks for your reply. The amount invested was directly deducted from income. Also while closing entire amt should taken as income in that particular taxation year. I have come to know from other various sources that NSS becomes exempt income under 80cca(2). Finance minister had announced in 2024 Feb Budget.  

NSS-1992 (National Savings Scheme 1992) closure has two separate tax treatments:

PRINCIPAL AMOUNT: If you claimed deduction under Section 80CCA(1) when you deposited the amount originally, the principal repayment on maturity or withdrawal is EXEMPT under Section 80CCA(2). This means the principal does not get taxed again. No need to report it as income.

INTEREST COMPONENT: The interest credited over the years (or at closure) IS taxable as Income from Other Sources under Section 56. This must be reported in your ITR in the year of receipt.

PRACTICAL ISSUE: The bank or post office may issue a closure certificate showing the total amount. You need to identify what portion is principal (covered by 80CCA(2) exemption) and what portion is interest (taxable). Ask for a separate interest breakup certificate from your branch.

ITR REPORTING: The exempt principal goes in Schedule EI (exempt income). The taxable interest goes in Schedule OS under Income from Other Sources. Do not lump both together or omit either.

This [income tax filing guide](https://taxgarden.in/blog/itr-filing-login-guide-step-by-step-2026) covers Schedule OS and Schedule EI entries step by step.