When it comes to mobilisation of funds, there are plenty of options in India. Individuals can choose to invest their idle income in any number of instruments. There are general options of investment, such as stocks and mutual funds, as well as customised avenues.
One such customised investment option is the Senior Citizen’s Savings Scheme. It allows individuals to secure an income stream after their retirement. And, akin to any other investment option stipulations, individuals need to abide by SCSS rules when they avail of this scheme.
However, prior to knowing the precise rules that dictate this savings scheme, it is essential to develop a basic understanding of it.
What is Senior Citizen’s Savings Scheme?
As the name spells out, it is a savings scheme meant exclusively for senior citizens or retirees. Naturally, it shares the features of a basic savings scheme. Here, individuals can deposit a sum, on which they earn periodical interest.
The interest is earned based on the applicable rate at the time of investment. If such rate is revised in a later quarter, it won’t apply to an investment that has been already made.
For instance, if Mr Roy deposits Rs.2 lakhs in Q3 of FY 2019-20, he’d enjoy an interest at the rate of 8.6% throughout the tenure. That’s one of the essential Senior Citizens Savings Scheme rules.
What are the SCSS Rules and Stipulations?
The rules related to Senior Citizen’s Savings Scheme can be classified into several categories. A primary category in that regard concerns eligibility.
Individuals need to satisfy the following eligibility criteria to invest in Senior Citizen’s Savings Scheme –
- He/she must be of or above 60 years of age.
- He/she must be above the age of 55 years but less than 60 years who has retired under superannuation or applicable VRS rules.
- Ex defence personnel can also open an account, per SCSS scheme rules.
One should note that individuals who retire on superannuation or as per VRS rules shall open an account within a month of receiving retirement benefits. Also, this scheme is not available to Hindu Undivided Families (HUFs), Non-Residential Indians (NRIs), and Persons of Indian Origin (PIOs).
Apart from the eligibility criteria, another crucial set of Senior Citizens Savings Scheme rules is regarding the documents required to start the account.
Individuals within 55 – 60 years of age who are eligible to open an SCSS account must provide the following documents to support their qualification:
- Document pertaining to the date on which such individual received the retirement benefits.
- An employer certificate containing the details of retirement under superannuation.
All eligible individuals need to submit these documents when applying to open an account under Senior Citizen’s Savings Scheme, per SCSS rules 2020:
- OVDs for KYC, like PAN, Aadhaar card, Voter ID card, Passport, etc.
- Form A
- Two passport size photographs
Alongside these, individuals might need to submit other documents. Thus, it is expedient to keep all papers related to retirement handy.
Under the Senior Citizen’s Savings Scheme, individuals are allowed to deposit any amount up to Rs.15 lakh, according to SCSS rules. The deposited amount should be in multiples of Rs.1000. Also, individuals can make a deposit only once, at the time of opening an account.
Eligible individuals can start more than one account under this scheme. However, the deposit limit of all those accounts combined is also capped at Rs.15 lakh.
It is to be noted that the deposit amount cannot be more than the retirement benefits one receives. Therefore, it is either the retirement benefit amount or Rs.15 lakh, whichever is lower.
For example, if Mr Sharma receives Rs.20 lakh upon retirement, he can only deposit Rs.15 lakh under the Senior Citizen’s Savings Scheme.
Also, individuals can deposit any amount up to Rs.1 lakh in cash. Cheque should be furnished if such amount exceeds Rs.1 lakh.
As per senior citizens savings scheme rules, a deposit matures 5 years from the date of account opening. For instance, if Ms Goenka opens an account on 2nd May 2020, it will mature on 2nd May 2025.
Account-holders may choose to prolong such maturity by another 3 years. In that case, they’d need to submit Form B within a month of the completion of such 5 years. Taking the above example, if Ms Goenka decides to extend her account’s maturity by another 3 years, she should submit Form B by 2nd June 2025.
However, the extension facility is available only once. Individuals cannot prolong their account’s maturity beyond such 3 years.
5. Premature withdrawals
One of the most vital aspects one needs to check before opening an SCSS account is regarding premature withdrawals. According to rules, individuals can prematurely withdraw from their accounts only after 1 year.
However, it entails penalty charges. These are:
- If an individual closes an account after a year, but before completion of 2 years, an amount equivalent to 1.5% of the principal amount will be charged as early withdrawal fee.
- In case it takes place after completion of 2 years, such fee will be equivalent to 1% of the principal amount.
As per SCSS rules, interest is calculated every quarter on the principal amount. Individuals receive this amount on the first date of each quarter, i.e. 1st April, 1st July, 1st October, and 1st January.
It is calculated based on the interest rate applicable when an account is opened, as discussed at the beginning. The following table illustrates the SCSS rates of the past 4 quarters.
|Q2 of FY20||8.6%|
|Q3 of FY20||8.6%|
|Q4 of FY20||8.6%|
|Q1 of FY21||7.4%|
SCSS beneficiaries can claim tax exemption of up to Rs.1.5 lakh under Section 80C on the principal amount in a year. The interest amount is entirely taxable. In case such amount exceeds Rs.50,000, TDS is applicable.
Individuals should keep these senior citizens scheme rules in mind when opening an account. That way, they can manage their finance more soundly and optimise their pecuniary benefits efficiently.