SCSS, short for Senior Citizen Savings Scheme is a government-sponsored savings instrument for individuals above the age of 60. The Government of India introduced this scheme in 2004 intending to provide senior citizens with a steady and secure source of income for their post-retirement phase.
It is one of the most lucrative savings schemes in India and offers comparatively substantial returns to its subscribers. Furthermore, it is a government-backed scheme, and hence, the risk of capital loss is negligible. Individuals can apply for SCSS through post offices as well as public & private banks.
The characteristics of SCSS are discussed below –
The interest rate offered under the Senior Citizen Savings Scheme is revised every quarter, and its derivation depends on several factors such as the prevalent rates in the market, inflation level, etc. Due to stagnant economic conditions or no significant change in it, rates might remain the same after revision.
The interest rate declared during the time of investment remains fixed throughout the maturity tenure and is not affected by alterations in a later quarter.
Eligible individuals require making a minimum deposit of Rs. 1,000 to open an account under the Senior Citizen Scheme. At the same time, the deposit quantum is capped at Rs. 15 Lakh or the amount received as a retirement benefit, whichever is lower.
For example, if an individual receives Rs 10 Lakh as a retirement benefit, he can invest up to that amount in the scheme. This clause applies irrespective of whether the account is held individually or jointly. However, one can only open a joint account with his/her spouse.
Also, if an individual holds multiple accounts under this scheme, the total amount deposited in all such accounts shall not exceed the maximum limit.
The maturity period for the SCSS scheme is 5 years. It can be extended for another 3 years, effectively bringing up the period to 8 years. If an individual is willing to extend such a period by 3 years, he/she shall submit Form B after duly filling it. An extension is allowed only once. Upon extension, however, interest rates applicable at that quarter would apply.
For instance, an individual deposited Rs. 7 Lakh under SCSS in April 2012, when the interest rate offered was 9.3%. However, when she extended this scheme in April 2017, the interest rate she was eligible to earn stood at 7.4%.
An individual can withdraw prematurely from their account under Sr. Citizen Savings Scheme one year after account opening. If an individual closes their account before the completion of 2 years, 1.5% of the deposited amount will be deducted as a penalty.
If account closure takes place after the completion of 2 years, 1% of the deposited amount is levied as a penalty. In the case of extended accounts, an individual can close their account after the first year without incurring any penalty.
For instance, if Mr Shah deposited Rs. 5 Lakh in the Senior Citizen Savings Scheme on 1st March 2019 and closed it on 6th February 2021, he would have had to bear a penalty of Rs. 7500. However, if the investor is deceased before the maturity of their account, no penalty will be charged.
Individuals who open an account under the Senior Citizen Savings Scheme are eligible to receive quarterly disbursals against their deposited amount. Interest payment will be credited to an individual’s account on the first date of April, July, October, and January.
An individual can choose to deposit their money in cash if the amount is below Rs. 1 Lakh, but has to pay in cheque if it exceeds Rs. 1 Lakh.
Individuals can register a nominee when they are opening their accounts under the Senior Citizen Savings Scheme or at a later date. In the event of an account holder’s death, before the account matures, the nominee will be eligible to receive the due amount.
SCSS is a government-endorsed scheme, and hence, capital invested in it enjoys superlative security and guarantee.
SCSS has been historically known to provide its subscribers interest at rates that are at par with what is offered by other saving schemes such as fixed deposit, recurring deposit, etc.
Interest is compounded quarterly and disbursed at every quarter on the first date of April, July, October, and January. The primary components used for its calculation are –
The maturity period is fixed, while the other two components are variable. The interest rate under which an individual invested is considered for interest calculation. A demonstration of interest calculation and the maturity amount is provided below:
Mr Amit deposits Rs. 10 Lakh under SCSS on 1st April 2020. In that respective quarter of the Financial Year 2020 – 21, the interest rate offered was 7.4%. Hence, the total interest he is eligible to earn at maturity is Rs. (1000000 * 7.4% * 5).
An SCSS account can be opened with a post office or any of the private or public banks in India. The procedure for both is similar, and is mentioned below –
Step 1: Visit your nearest bank branch or Post office branch
Step 2: Duly fill up the Form A
Step 3: Submit the original and photocopies of all the necessary documents, broadly address and identity proof
Step 4: Produce age proof
The SCSS application form is available at any Post Office branch or on the Post Office’s official website. The procedure for completing the application form is as follows:
Step 1: Go to the Bank branch closest to you or the Bank branch where you have a savings account.
Step 2: Request an application form and fill it out with your personal information.
Step 3: Submit the application form, along with any supporting documentation, to the bank’s officials, along with the deposit amount in cash or check.
Step 4: The Bank professionals will process your application and the payment received. The SCSS account will be created once the payment is processed.
The category of individuals who are eligible to open an account under the Senior Citizen Savings Account is mentioned below –
Non-resident Indians or NRIs, persons of Indian Origin or PIOs, and any member of a HUF or Hindu Undivided Family do not qualify for opening an account for the scheme.
An individual needs to produce the following documents to open an account under SCSS –
These documents need to be self-attested.
SCSS is one of the most beneficial investment options for senior citizens, given its security of capital, high returns, and also the tax benefit it attracts.
The principal amount deposited in an SCSS account is eligible for tax deductions under Section 80C of the Income Tax Act, 1961, up to the limit of Rs. 1.5 Lakh. However, this exemption is applicable only under the existing tax regime. It is not allowed if an individual chooses to file tax returns under the new system introduced in Union Budget 2021.
The interest received is, however, subject to taxation as per the applicable slab of the concerned taxpayer. Besides, if an individual’s interest income in a year exceeds Rs. 50,000, then it is subject to Tax Deducted at Source (TDS).