All about Senior Citizens Savings Scheme

Let us look at the various aspects that make Senior Citizen Savings Scheme a very enticing option for senior citizens.

April 08, 2020 3:44 IST | India Infoline News Service
Senior Citizens
The one thing we tend to hear when it comes to investments is, start early and be consistent. When we are young, we have innumerable options to invest in, and a considerable period of time to allow the money to grow. Invariably, we can choose to invest in assets like stocks and mutual funds, which tend to be risky. But, as we grow older and closer to retirement, our priorities and financial goals change. At that point of time, we tend to move towards safer and steadier investments. Senior Citizen Savings Scheme (SCSS) is one such avenue aimed at providing a safe and viable investment option for senior citizens and retired individuals. Let us look at the various aspects that make this scheme a very enticing option for senior citizens.

  • SCSS account can be opened by an individual who is above the age of 60.
  • SCSS account is also open to individuals who have retired on superannuation or taken VRS at the age of 55 or more but less than 60 years. Such persons need to open the account within one month of receiving the retirement benefits, provided the amount deposited in SCSS account is not more than his/her retirement benefits.
  • Senior citizens are allowed to operate more than one SCSS account individually or jointly with spouse.
  • For defence personnel, the retirement restriction has been lowered to 50 years.
  • Non-Resident Indians (NRIs), Person of Indian Origin (PIOs) and Hindu Undivided Family (HUFs) members are not eligible to open a SCSS account.
Deposit limits
An individual can operate more than one account individually or jointly, subject to the Rs15 lakh deposit limit in all accounts put together. Investors are allowed to make a lump sum deposit with the minimum deposit being Rs1,000. Deposits greater than the minimum amount accepted have to be made in multiples of Rs1,000.  Also, the amount invested in the scheme also cannot exceed the money one receives on retirement. Therefore, one can invest either Rs15 lakh or the amount received as a retirement benefit, whichever is lower.

The account can be opened by cash for amounts below Rs1 lakh and by cheque only for Rs1 lakh and above, as per the senior citizen scheme rules on the Income Tax website. The investment date in the scheme is taken as the date on which the cheque is realized in the government's account.

How to open an account?
A senior citizen can invest in this scheme by opening either an individual or a joint (along with the spouse) account with a post office or a scheduled commercial bank. The following documents are required to open an SCSS account:
  • Application form, available at the post office or bank
  • Know Your Customer (KYC) form
  • Photographs of the applicant/s
  • Permanent Account Number (PAN)
  • Address proof
  • Age proof
  • Retirees applying for the scheme will additionally require
                           - Certificate from the employer stating the retirement was on superannuation or otherwise.
                           - Retirement benefits
                           - Designation held (designation)
                           - The period of employment.
                           - Proof of date of disbursal of the retirement benefits

The tenure of this scheme is 5 years with the option to extend it for 3 more years. In order to extend the scheme for another 3 years after the completion of the 5-year tenure, the investor is required to submit the duly filled Form B for the extension of the scheme. Only one extension is allowed. The extended accounts can be closed after just 1 year into extension without facing a penalty.

If the depositor wishes to close the account after the completion of 5 years forgoing the extension, then he/she can do so by submitting the duly filled 'Closure Form', along with the passbook. He/she will receive the maturity amount after the closing formalities are processed. In case the depositor has not extended the scheme on maturity or closed the account after maturity then post maturity, the deposit will earn the post office savings account interest rate, applicable at that time.

Interest payment
The rate of interest is reviewed quarterly by the Ministry of Finance and subject to periodic change. Interest on SCSS account deposits is calculated and credited quarterly. Interest for these accounts are paid out quarterly. The interest is directly transferred to the bank or post office that the SCSS account is held. As of January 2020, the interest rate available on the SCSS account is 8.6% per annum for the final quarter of FY2020, however effective April 01, 2020, the interest rate on SCSS has been reduced to 7.4%..

Investment in SCSS qualifies for deduction under Section 80C of the Income-tax (I-T) Act. However, this tax benefit is under the overall current ceiling of Rs1.5 lakh per annum fixed for all investments under Section 80C.

It is important to note that interest on SCSS is fully taxable. In case the interest amount earned exceeds Rs50,000 for a fiscal, Tax Deducted at Source (TDS) is applicable to the interest earned. This limit for TDS deduction on SCSS investments is applicable from AY 2020-21 onwards.

Pre-mature withdrawal
Since the deposit tenure is for five years, if a depositor decides to withdraw the proceeds, he/she will face penal charges. The penalties on premature exit from SCSS are as follows:
  • 1.5% of deposit amount deducted as a penalty if a depositor makes withdrawals from the scheme before completion of 2 years from the date of account opening.
  • 1% of SCSS deposit deducted as a penalty if a withdrawal takes place between 2 years to less than 5 years from the date of account opening.
The depositor also loses the 80C benefit if he/she withdraws from the scheme prematurely, but the benefit is not withdrawn on retrospective basis for the year of the deposit. Instead, the principal amount withdrawn, along with the interest paid in the year of withdrawal is added to the individual's gross total income in the year of the premature withdrawal.

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