All About Tax-Free Senior Citizens Savings Scheme (SCSS)

Among the various tax saving schemes available from the government-backed stable, one of the most popular among the senior citizens is the SCSS. The Senior Citizens Savings Scheme (SCSS) is offered to Indian residents above the age of 60 years. The SCSS deposit has a typical maturity of 5 years but this is extendable by a period of another 3 years. One of the reasons the SCSS is popular in India is that the rate of interest is extremely attractive compared to other similar products. In the last 3 years, the rate of interest has ranged between 8.3% and 8.6% and is currently at 8.6%. Senior citizens (being resident Indians) are eligible to buy SCSS from PSU and private banks as well as through the post offices. Being government backed, the principal and interest component are fully secured.

Key features of the SCSS scheme

• The SCSS has emerged as a veritable source of savings for senior citizens and here are some of the highlights of the SCSS scheme.

• Rate of interest on SCSS is currently at 8.6% and is reset every quarter after a review by the Finance Ministry. The SCSS interest rate has been, on an average, 60-100 bps above the bank FD rate.
• On the lower side, the minimum deposit that can be made by a senior citizen in the SCSS scheme is Rs1000 and the upper limit is Rs15 lakhs. The SCSS allows contributions up to Rs1 lakh in cash but anything above that must be via legitimate banking channels only.
• The Senior Citizens Savings Scheme automatically matures after a period of 5 years from the date of account opening. The account holder has the option to extend this deposit once for a period of 3 years, but at the end of 8 years the deposit has to be mandatorily redeemed.
• While the SCSS scheme is only available for senior citizen above the age of 60, there is an exception that is made. Persons can also buy SCSS at 55 years provided they have retired under applicable superannuation or VRS rules. However, in this case the SCSS account must be opened within 1 month of receipt of retirement benefits. SCSS scheme is not open to NRIs or to HUFs.
• Coming to the tax aspects, the SCSS offers tax breaks on the investment component. Investments in SCSS qualify for income tax exemption under Section 80C deduction up to Rs150,000 per financial year. However, interest received on SCSS is fully taxable in the hands of the recipient. TDS is applicable if interest is more than Rs50,000 per year.
• The compounding of interest is annual and is paid out each year. Such payouts are automatically credited to the savings account held with the post office / bank where this savings scheme account for senior citizens has been opened.
• While only select banks offer the SCSS scheme, the SCSS account can be opened at virtually all the Indian Post Offices. The wide reach of India Post ensures that the option of SCSS account is available to Indians across the country; even those located in the most remote parts. Also the Post Office is seen as a trusted organization which explains the popularity of the SCSS scheme. While private and PSU banks also offer SCSS, you need to check if the said branch offers SCSS or not.
• While opening an SCSS account requires minimal documentation, the facility is not available online. The investor can either walk into the bank branch with the documents or download the form and print it but it still needs to be submitted offline only.
• PAN card and Aadhar are two basic documents that are required to open the SCSS account. The SCSS account can also be opened jointly with your spouse, in the absence of which nomination becomes mandatory. Nomination can either be a single beneficiary or it can also be multiple beneficiaries.
• Finally, premature withdrawal is permitted but it entails a penalty and also revocation of Section 80C benefits claimed. The penalty is 1.5% of deposit amount if you exit before 2 years from the date of account opening and the penalty is 1% if exited between 2 years and 5 years.
• SCSS combines the advantage of government guaranteed investment with above market returns. The tax exemption makes the SCSS more attractive in post tax terms. The scheme is a little rigid in that it only permits one time investment irrespective of the amount. But the easy and simple points of sale make it extremely convenient.