The senior citizen savings scheme (SCSS) is a government-backed scheme which offers a great avenue for senior citizens to invest a part of their retirement corpus and earn quarterly interest. Safety of principal and assured periodic returns play a key role while choosing an investment scheme especially in the case of senior citizens. This scheme, which offers guaranteed quarterly interest pay-out, was introduced in the year 2004 with the objective of providing senior citizens with a steady and secure source of income for their post-retirement.
This account can be opened in any bank or post-office and has a maturity period of five years and can be extended for a further period of three years (request has to be submitted by filling in form B within one year of maturity). Thus, effectively, this scheme is limited to five years. Only a one-time extension up to three years is possible; hence, one cannot invest in this scheme beyond eight years.
A maximum of Rs15 lakh can be invested (individually or jointly in the scheme). One can open a joint account only with his/ her spouse. In case of joint account, the entire amount of deposit in the joint account is attributable to the first account-holder only. Nomination under this scheme can be done only in favour of resident Indians. An account can be transferred from one post-office to another.
The rate of interest offered under the SCSS is revised every quarter by the ministry of finance and its derivation depends on several factors such as the prevalent rates in the market, inflation level, etc. Sometimes, due to stagnant economic conditions or no significant changes, rates might remain the constant after revision. The current interest rate offered on SCSS is 7.4%, which is taxable, and investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act, 1961. The interest rate prevalent at the time of investment of funds is what you earn throughout the maturity tenure and your investment is not affected by interest rate alterations in later quarters. Interest is paid out on on 31st March, 30th June, 30th Sept and 31st December.
The investment is locked in for five years but account can be prematurely closed any time after date of opening. In case you opt for premature withdrawal, there is a penalty charged.
If the account is closed before one year, no interest will be payable and if any interest has been paid in account it shall be recovered from principal. If the investor exits from the scheme before completion of two years from the date of account opening, then penalty will be charged at 1.5% of the deposit amount. If the investor exits from the scheme within two years and less than five years from the date of account opening, 1% of the deposit amount as a penalty is charged. In the event of the death of the depositor, no charges or penalty is levied for the premature closure of the account. Extended account can be closed after the expiry of one year from the date of extension of the account without any deduction of penalty.
• The scheme is open for any resident individual aged 60 years and above.
• Individuals who have attained 55 years but are less than 60 years old are also eligible to apply for SCSS, provided they have retired under applicable superannuation or VRS rules.
In such cases, the SCSS account should be opened within one month of the receipt of retirement benefits. One needs to also submit proof of date of disbursal of such retirement benefit(s) along with a certificate from the employer indicating the details of retirement on superannuation, retirement benefits, employment held and period of such employment with the employer.
• Retired personnel from defence services (except civilian defence employees) who have attained the age of 50 years can also invest in SCSS (subject to the fulfilment of other specified conditions).
• Retired civilian employees above 55 years of age and below 60 years of age can invest in this scheme (subject to condition that investment to be made within 1 month of receipt of retirement benefits).
Form A needs to be filled in and two passport-size photographs need to be submitted.
• Proof of identity and address (any one of the following):
1. Aadhaar card
3. Driving licence issued by Regional Transport Authority
4. Voter ID card
5. Job card issued by NREGA signed by State Government ofcer.
• Additional documentation if the investor is less than 60 years:
1. Certificate from the employer indicating the details of retirement on superannuation or otherwise, retirement benefits, employment held and period of such employment with the employer.
2. Proof of date of disbursal of retirement benefits (the date of opening of an account under this Scheme should be within one month of the date of receipt of the retirement benefits).
In addition to the above documents, PAN card is mandatory.
Minimum and Maximum Amount
The minimum deposit allowed in an SCSS account is Rs1,000 and in multiples of 1,000 thereafter. The maximum deposit allowed in an SCSS account as per is Rs15 lakh.
The principal amount deposited in an SCSS account is eligible for tax deductions under Section 80C the Income Tax Act, 1961, up to the limit of Rs1.5 Lakh. However, this exemption is applicable only under the old tax regime and is not allowed if an individual chooses to file tax returns under the new system introduced in Union Budget 2020. The interest received is, however, subject to taxation as per the applicable slab of the concerned taxpayer.
Tax deducted at source (TDS) is applicable on the interest amount earned on a quarterly basis for investment in the SCSS. For exemption, Form 15H has to be submitted at the respective bank/ post-office branch every financial year.
There are a few limitations to this scheme: cap on investment amount (Rs15 lakh only), limited tenure (5 years + 3 years extension), penalty on premature withdrawal and income-tax deduction at source on interest earned which reduces overall earnings. But despite these limitations, the government-endorsed scheme is good option since it offers good returns and the capital invested in it enjoys superlative security and guarantee.