Senior Citizen Savings Scheme and five things you should know

Nischay Avichal

Into their retirement, a safe and trustworthy investment is what most retirees rely on. The amount of risk they can afford to take with their life-long savings is minimal, and rightly so. Taking on risks you are not required to isn’t a prudent decision. A more rational approach to investing should be to weigh your risks and not take unnecessary risks when you can afford to. The crucial objective for retirement portfolios is primarily income generation with minimal risk.
That is why SCSS is one of the viable investment options for retirees. In this blog, we discuss five crucial aspects related to the scheme.
What is SCSS? The Senior Citizen Savings Scheme (SCSS) is a government-backed annuity plan launched in 2004. The scheme’s primary objective is to provide guaranteed returns to senior citizens. Any Indian resident can open an SCSS account by visiting a post office or a designated nationalised bank. The scheme pays out quarterly income (interest is paid on the last working day of March, June, September and December) based on the interest rate set and revised by the government every quarter. Currently, the interest rate stands at 7.40 % per annum. The interest rate is locked in once a subscriber has enrolled and stays unchanged for the tenure (first five years).
Eligibility: You are eligible to invest in the scheme if you are 60 years or above. Additionally, an individual who has retired on superannuation or under VRS who is at least 55 but less than 60 years can also invest in SCSS. In this case, the account should be opened within one month of receiving retirement benefits, and the total investment in SCSS shouldn’t exceed the retirement benefit. Retired defence personnel (Not civilian-defence employees) are also eligible to invest in the scheme if they are at least 50, subject to fulfilment of specified conditions.
Investment Limit: The minimum investment limit is 1,000, and the maximum is Rs 15 lakh per individual in SCSS. Joint account provision is available in the scheme with spouse. Hence you can increase the investment limit to 30 lakhs when investing jointly. Deposits have to be in multiples of Rs 1,000, and only one deposit is allowed. The nomination facility is also available under SCSS.
Liquidity:  SCSS has an initial maturity of five years and can be extended by three more. Upon maturity, no provision restricts an individual from opening an SCSS account again. In case of premature withdrawal from the scheme, a penalty of 1-1.5% is applicable depending on the completed tenure of the account. If the account is closed within a year, no interest is payable, and if any interest was paid out, it is deducted from the principle. Closure after one year but before the end of the second year attracts a penalty of 1.5%, and 1% penalty is applicable if the account is closed on or after the second year.
Tax treatment: SCSS investment is eligible for tax deduction up to 1.5 lakhs in a financial year under Section 80C. Interest income from the scheme is also eligible for deduction up to 50K as per section 80TTB. Section 80TTB allows senior citizens to take a deduction of interest earned from all types of deposits like banks, co-operative banks and post offices subject to an overall maximum limit of 50K. Further, interest income is subject to TDS.
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