Interest on NSC will be taxable as Income From Other Sources...
As per Section 145 of Income Tax Act, the assessee can report Income from Other Sources either in accordance with cash or mercantile system of accounting which is regularly followed by him...
If you follow mercantile system, then you will have benefit as interest is reinvested in NSC...So this interest will be taxable as I/O/S but can be simultaneously be claimed as deduction under Section 80C...
On the other hand, as per cash basis interest will be taxable at the time of maturity...