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The Senior Citizens Savings Scheme (SCSS) is the most sought-after post-retirement investment scheme and the best monthly income source for senior citizens. Senior Citizens can deposit the amount at certified banks or post office. The SCSS offers regular income, highest safety and tax savings to citizens over the age of 60 years. Post-retirement, people are hesitant to put lifelong savings in investments such as equities which are risky, or have a long lock-in period or don’t offer any income till maturity. This is where SCSS comes into play, with its following features:
- SCSS scheme offers capital protection. It is backed by the government and therefore, it offers a sovereign guarantee.
- Any salaried individual aged 60 and above can invest in it. Retired defense personnel is allowed to invest after the age of 50 years.
- SCSS account can be opened singly or jointly.
- SCSS offers quarterly interest payment as a source of income. The current interest rate is 7.40%.
- SCSS account can be opened with any post office or a scheduled commercial bank.
- This scheme requires minimal and basic documentation, with Aadhaar and PAN being absolutely mandatory for opening a SCSS account.
- The maximum amount that can be invested is Rs. 15 Lakh or the amount received as a retirement benefit, whichever is lower.
- Under section 80C of Income Tax Act, tax deduction up to Rs. 1.5 lakh can be claimed.
- Nomination facility is available free of charge by submitting the duly filled nomination form.
- Flexible investment tenure of upto 5 years and can also be extended upto 3 more years.
Eligibility for SCSS
Salaried individuals are eligible for senior citizens scheme under following parameters-
- A senior citizen with an age of 60 years or above.
- Early retirees with an age of 55-60 years who have opted for Voluntary Retirement Scheme (VRS) or superannuation can also invest in the scheme. In this case, the investment has to be done within a month of receiving the retirement benefits.
- Retired defense personnel can also invest in the SCSS scheme with a minimum age of 50 years.
- Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs) are not allowed to invest under sr citizen saving scheme.
Investment in Senior Citizen Scheme
An individual, singly or jointly, can invest up to a maximum amount of Rs. 15 lakh in SCSS account. The amount you invest in this scheme should not exceed the amount that has been received on retirement. This means you can invest either Rs. 15 lakh or the amount received as retirement benefit, whichever is lower. You can open the account by cash for an investment below Rs. 1 lakh or by cheque for an investment above Rs. 1 lakh.
Senior Citizen Saving Scheme Interest Rate
SCSS currently enjoys 7.40% interest rate, which is one of the highest return on investments available in recent times. The Ministry of Finance reviews Senior Citizens Saving Scheme interest rates at the end of every quarter, namely March 31, June 30, September 30 and December 31. The interest payable is then credited to the account holder’s account on April 1, July 1, October 1 and January 1.
The interest payable will be the one that is applicable on the date of the investment and it does not change with quarterly revisions. However, the investment which is typically locked in for 5 years, is extendable up to 3 years. If you avail extension, the interest rate will be earned at the rate applicable on the date of extension.
SCSS Scheme – Withdrawal and Maturity
This scheme is locked in for a period of five years, and it can be further extended for three years if the account holder wishes to. The depositor can withdraw from the SCSS account but only after one year of its operation.
The premature withdrawal charges are as follows:
- Withdrawal after a year, but before two years: Charges are 1.5% of the deposit
- Withdrawal after two years: Charges are 1% of the deposit amount
- In the event of the death of the depositor, no charges or penalty are levied for premature closure of the account.
On completion of the account’s 5 years, the depositor must fill a ‘Closure Form’ to claim the maturity amount. In case the depositor wants to apply for the three-year extension, he has to submit the ‘Extension Form’ of the scheme.
If the depositor has neither extended the scheme nor withdrawn the money, the deposit will start earning the Post Office Interest Rate for Senior Citizens Savings Account, as applicable at that time.
Tax Saving Schemes for Senior Citizens
Senior Citizen Saving Scheme is one of the best tax saving investment schemes for the elderly because SCSS investment is eligible for deduction under Section 80C of the Income-tax (I-T) Act, subject to a maximum limit of Rs. 1.5 Lakh.
Tax Saving in SCSS has the following conditions:
- Tax Benefit under Section 80C is available from the financial year in which the deposit is made. No additional benefit is provided under Section 80C for the extension of an existing account after five years.
- The 80C benefit is lost if the amount is withdrawn prematurely. The principal amount is withdrawn and the interest earned in the year of the withdrawal is added to the depositor’s gross total income in the year of the premature withdrawal.
- Premature withdrawal made by the nominee or legal heir is not taxable in the event of the death of the depositor. But, any interest paid after the demise of the depositor is taxable.
Interest Income from SCSS is fully taxable
It must be noted that while investments are eligible for tax benefit under Section 80C, the interest income from the SCSS is fully taxable. The interest income is subject to tax deduction at source (TDS) if it exceeds Rs. 10,000 in a financial year.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) vs Senior Citizen Savings Scheme (SCSS)
Pradhan Mantri Vaya Vandana Yojana (PMVVY), operated by LIC is also a Saving Scheme for pension earners above the age of 60. Both, the PMVVY and SCSS are profitable investment options for senior citizens, and if possible, one must invest in both. Here is a comparison chart of the two which can help you to make an informed decision.
|Interest Rate||8%||7.4%, reset quarterly|
|Lock-in Period||10 years||5 years (extendable by 3 years)|
|Payment of Interest||The choice between monthly, quarterly, half-yearly and yearly||Quarterly|
|Maximum Investment||7.5 Lakh||15 Lakh|
|Penalty for premature withdrawal||2% of the deposit amount||1-1.5% of the deposit amount|
Thus, if a depositor has a surplus amount, he can invest in both the schemes. A total of Rs. 30 Lakh (Rs. 15 Lakh by each spouse) in SCSS and Rs. 7.5 Lakh in PMVVY can help to earn around Rs. 25,000 - 27,000 per month as pension.
Documents Required to Open a SCSS Account
Following documents are required to open senior citizen scheme account in any of the authorized banks or post office branch across India
- Duly filled Form A
- 2 photographs of the applicant
- Identity proof like Passport or PAN card
- Address proof like Aadhaar Card or telephone bill
- Age proof like Passport, Senior Citizen Card, Birth Certificate, Voter ID Card, PAN Card
- For retirees, a certificate from the employer, stating the retirement was on superannuation or retirement benefits, a period of employment and employee’s designation
- Retirees have to submit proof of disbursement of retirement benefits