Senior Citizen Savings Scheme (SCSS) is a government aided savings scheme introduced in the year 2004 for the benefit of the elderly individuals. The scheme is aimed at providing guaranteed interest income to Senior Citizens. The scheme offers higher rate of interest when compared to time deposits. Tax Benefits is also available under the Scheme. Currently, Scheme is offering 7.4% return on deposits made till quarter ending 30th September, 2020.
Senior Citizen Savings Scheme Account may be opened in any of the notified Post Office or any designated branch of Public Sector Bank and one Private Sector Bank (ICICI Bank). Minimum deposit allowed under the scheme is Rs 1,000/- and Maximum deposit is restricted to Rs 15,00,000/- (Rs 15 lacs).
Income Tax Slabs & Rates FY 2020-21
SCSS is a good investment option for risk adverse Investors as interest rate on deposit is guaranteed. Government declares the rate of interest on quarterly basis. However, if inflation and rising cost of living is taken into consideration the interest earned may not look very attractive.
Eligibility under Senior Citizen Savings Scheme
Senior Citizens aged 60 years or above at the time of opening an account under the Scheme.
Any Individual who has attained the age of 55 years but is less than 60 years, retired on superannuation or opted for Voluntary Retirement. The deposit should be made within one month of receipt of retirement benefits.
The retired personnel of Defense Services (excluding civilian Defense employees) aged 50 years or above subject to fulfillment of other specified conditions.
Eligibility of HUF/NRI
HUF/NRIs are not eligible to participate in the scheme.
Investment Options
Minimum Investment amount is Rs 1,000/- and Maximum Investment Limit is Rs 15,00,000/-. Only one time deposit is accepted under the Scheme.
Mode of Investment/Deposit & Opening of Account
Investment below Rs 1,00,000/- may be opened with Cash, but for higher amount investment should be done through Demand Draft or Cheque.
Account opening formalities may be completed through designated post office or branch office of notified bank. Investment through online mode is not available.
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Tenure of Investment
Deposit has a maturity period of 5 years which may be extended further for 3 years at the behest of the Depositor. The option for extension is available only once and request has to be made within a year of SCSS account maturing.
Interest on Deposit & Payment
Currently, the deposit earns an interest of 7.4%. The rate of interest is declared by the Government on quarterly basis. The Interest is payable to the depositor at the end of each quarter of the calendar year. Compounding of Interest is not permitted.
Interest is directly credited in to the bank account of the Depositor at the end of every quarter.
The rate of interest offered at the time of opening the SCSS account remains fixed for the entire tenure of the deposits. The interest rate is not impacted by the revisions announced in succeeding quarters.
Premature Closure/Withdrawal
Premature Closure and Withdrawal is allowed post completion of 1 year of deposit but after 1.5% deduction (penalty) from deposit amount. Withdrawal after 2 years and before maturity is allowed with deduction of 1% from the deposit amount.
Tax Liability under Senior Citizen Savings Scheme
Deposit in the Scheme is eligible for deduction U/S 80C up to the maximum limit of Rs 1,50,000/- in the Financial Year, the deposit is made. Interest earned up to Rs 50,000/- in a financial year is exempted U/S 80 TTB. Tax Deducted at Source (TDS) is applicable on Interest earned above the limit.
Interest earned above the exemption limit is taxable in the hands of the depositors. The interest is added to the annual income of the depositor for the computation of the Tax Implications.
Income Tax Deductions for FY 2020-21
Nomination
Nomination facility is available in case the depositor opts for the same.
Number of Accounts under Senior Citizen Savings Scheme
Any number of Accounts can be opened by an Individual but the aggregate deposit limit should not exceed Rs 15,00,000/- (Rs 15 lacs). Single Account or Joint Account with spouse is allowed under the scheme.
Spouses may also individually open an Account subject to fulfillment of eligibility conditions.
Senior Citizen Savings Scheme (SCSS): Investment in the Scheme
SCSS may not be offering very high returns on deposits. But it is offering higher return when compared to Bank FDs and the return is guaranteed. Thus SCSS deposit is safe and provides regular interest income to the elderly individuals. Senior Citizens may deposit their retirement benefits in the scheme for regular income.
Critics may argue that SCSS does not factor in inflationary trend and rise in cost of living. However, SCSS provides regular interest income to the senior citizens to meet their basic needs. The return may not be lucrative but it is risk free. Interest Rate was slashed drastically from 8.6% to 7.4% in the 1st Quarter of FY 2020-21 following the ongoing economic scenario surrounding Covid-19 and consecutive repo rate cuts by the Reserve Bank of India (RBI). However, SCSS still remains an attractive deposit scheme offering risk free interest income to the depositors.
Senior Citizens ideally need to diversify their savings into guaranteed return products and low risk debt instruments. This would strike balance between risk & return. Investment in debt instruments involves low risk but may offer higher returns when compared to fixed return instruments.
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