Senior Citizen Savings Scheme (SCSS) - a better option than a FD!
Senior Citizen Savings Scheme (SCSS) is a reliable investment instrument undertaken by the Government of India. Only senior citizens of India are allowed to opt for this scheme. SCSS offers an attractive interest rate with five years of tenure that can be a better option than bank FDs. The current interest rate of SCSS, as of October 2020, is 7.4% per annum.
The Senior Citizen Savings Scheme account holder can get a Tax deduction of up to Rs. 1.5 lakh under Section 80C. NRIs (non-resident of India) are not eligible for opening this scheme. An SCSS is allowed to open from both Post-office and RBI recognized Banks.
Eligibility criteria for opening a Senior Citizen Savings Scheme (SCSS)
To open an SCSS account, the following criteria are needs to be fulfilled:
- All residents of India aged 60 years or above are eligible for opening this account in the Post office or authorized Banks.
- A Gov. employee who opted for VRS (Voluntary Retirement Scheme) at the age between 55 and 60 years can also open an SCSS account. In this case, the account must be open within one month of retirement.
- The above age conditions do not apply to defense personnel. However, They are also eligible for this scheme, but he/ she needs to fulfill some other criteria.
Persons under the below situations are not eligible for SCSS:
- A Non-Resident of India (NRIs) and Persons of Indian Origin (PIOs) are not eligible for this scheme.
- The member of the Hindu Undivided Family (HUF) is also not eligible.
Documents required for Senior Citizen Savings Scheme (SCSS)
The following documents need to be submitted while opening an SCSS account:
- An Identity Proof (Voter ID, Aadhaar, Passport, etc.)
- Address Proof (Aadhaar Card, Passport, Latest Electricity Bill, Bank Passbook, etc. )
- Date of Birth Proof (Aadhaar Card, PAN Card, Birth Certificate, School Certificate, etc.)
- PAN Card.
- Passport Size Photograph
- SCSS Application form
- Filled KYC form
Investment limit
The SCSS is a one-time deposit scheme. An applicant can invest a minimum of Rs. 1000, and the maximum is 15 lakh individually or jointly. Investment over Rs. 1000 must be multiple of 1000. The depositor has the option to pay by both cash or cheque. To deposit above Rs. 1 lakh the applicant must pay by cheque.
Also read: National Savings Certificate (NSC) – A Govt’s Backed Savings Scheme
Tenure of SCSS
Senior Citizen Savings Scheme matures after five years from the opening date of the account. The deposited amount will be locked-in for five years. The Account holder can extend the tenure for a further three years by giving an extension application to the respective authority before maturity.
Premature closure
SCSS allows premature closure of account but only after one year.
On closing the SCSS account before completion of the 2nd year, a penalty of 1.5% will be charged on the deposited amount. And closing the SCSS account 2nd year onwards, only a 1% penalty will be applicable. However, in the case of the account holder's death, there will be no penalty.
Taxability on SCSS
Income over Senior Citizen Saving Scheme is taxable. If interest fetches more than Rs. 50,000, then TDS will be applicable. However, tax-deduction benefits up to Rs. 1.5 lakh (U.S. 80c. Income Tax Act.) is allowed to avail during the first year of investment.
SCSS interest rate
As of Q1 FY 20-21, the rate of interest of the Senior Citizen Savings Scheme is 7.4%. The interest rate revises quarterly. However, the initial rate of interest during investment will remain the same until its maturity. As an example, if Rajat invests Rs. 15,00,000 lakh with an ROI of 7.4%, he will fetch the same rate of interest until maturity.
The interest will be paid into a provided savings account on completion of each year. Here are some examples of sample returns below:
| Invest | Annual Income | Total Return (5 Years) | Total Return (8 Years) |
|---|---|---|---|
| Rs 15,00,000.00 | Rs 1,11,000.00 | Rs 20,55,000.00 | Rs 23,88,000.00 |
| Rs 10,00,000.00 | Rs 74,000.00 | Rs 13,70,000‬ | Rs 15,92,000 |
| Rs 8,00,000.00 | Rs 59,200.00 | Rs 10,96,000 | Rs 12,73,600 |
| Rs 5,00,000.00 | Rs 37,000.00 | Rs 6,85,000‬‬ | Rs 7,96,000‬ |
The above calculation is based on an annual interest rate of 7.4%.
Senior Citizen Savings Scheme (SCSS) Certificate
The depositors of the SCSS account are normally given a passbook or a certificate just similar to a bank fixed deposit.
Nomination facility under SCSS
Senior Citizen Saving Scheme is only for senior citizens. However, the primary account holder can add one or more nominees under this policy. The account holder can also change or add a nominee after opening the account.
Benefits of Senior Citizen Savings Scheme (SCSS)
- The Senior Citizen Savings Scheme (SCSS) is a Gov. of India-backed saving scheme. So, this scheme brings with it reliability and trustiness.
- The rate of return is moderately high and looks better than bank FDs.
- A nomination facility is also available under this scheme.
- Additional TAX deduction is available up to Rs.1.5 lakh under section 80c.
- SCSS account is allowed to open in both online and offline mode.
- Premature account closure is allowed under this scheme.
- SCSS comes with five years of tenure. However, it can be extended farther for three years.
- A person can open multiple SCSS account, but the total sum of investments must be under the upper limit, which is Rs. 15 lakh.
Also read: How to Save Money - 10 Simple Money Saving Tips
Disadvantages of Senior Citizen Savings Scheme (SCSS)
Despite a compact scheme, the Senior Citizen Savings Scheme has some drawbacks. These are described following:
- Interest-rate: The Senior Citizen savings scheme does not offer a fixed interest rate. The interest rate changes quarterly every year. As of October 2020, the interest rate is 7.4%. Few sessions before, the interest rate was 8.6%.
- Taxability: The interest on investment is fully taxable. TDS is applicable on interest above Rs. 50,000.