The Senior Citizen Savings Scheme or SCSS is a popular small savings scheme meant for providing regular, risk-free income to senior citizens (age 60 or more). In special cases, those who have not attained the age of 60 can also open Senior Citizen Savings Scheme accounts. For example, a person of 55 years or more who has retired on superannuation or under VRS can also open an account, subject to the condition that the Senior Citizen Savings Scheme account is opened within one month of receipt of retirement benefits and the amount should not exceed the amount of retirement benefits.
Retired personnel of the defence services, excluding civilian defence employees, are eligible to invest on attaining the age of 50.
The maturity period of the Senior Citizen Savings Scheme is five years and it can be extended. Request for extension of the account has to be submitted within one year from maturity.
Senior Citizen Savings Scheme accounts can be opened in post offices and select branches of designated banks. In the Senior Citizen Savings Scheme, the interest payout is quarterly, on the first working day of April, July, October and January.
The maximum investment limit in the Senior Citizen Savings Scheme
A depositor can operate more than one account, subject to a maximum investment limit of ₹ 15 lakh, by adding the balance in all accounts. Senior Citizen Savings Scheme accounts can be through single or joint holding but joint holding is allowed only with spouse. In case of a joint account, the age of the first applicant/depositor is the only factor in deciding eligibility. There is no age bar/limit for the second applicant/joint holder. The whole amount of investment in a Senior Citizen Savings Scheme account is attributed to the first applicant/depositor.
Both the spouses can open individual and/or joint accounts with the maximum deposits up to ₹ 15 lakh each, provided that both are individually eligible to invest under relevant provisions of the rules governing the scheme.
“If you have a lump sum, you can go for a one-time deposit. If you are getting retirement benefits in bits and pieces, you can invest in a staggered way," said Ramalingam K, chief financial planner at Holistic Investment, a Chennai-based financial planning and investment advisory company.
Currently, the Senior Citizen Savings Scheme fetches an interest rate of 8.3% per annum. The interest rate on small savings schemes, including the Senior Citizen Savings Scheme, is revised quarterly and is pegged to the yield on government securities or G-Secs.
Income tax benefits on the Senior Citizen Savings Scheme
However, if your retirement is close to the end of a financial year, then you can invest in two portions, suggests Ramalingam. “The first portion can be invested in the current financial year and the second portion can be invested at the beginning of the next financial year. This way, you will get Section 80C deduction benefits for both the years."
For example, Naren wants to invest ₹ 15 lakh in the Senior Citizen Savings Scheme in February 2018. He can invest ₹ 13.5 lakh in February 2018 and the balance ₹ 1.5 lakh in April 2018. In this case, he will receive tax deduction for two financial years. So staggering helps here.
Remember that contributions up to ₹ 1.5 lakh a year in the Senior Citizen Savings Scheme qualify for tax deduction under Section 80C of the Income Tax Act. A deduction reduces your overall tax liability.
Considering that the current 8.3% interest rate offered by the Senior Citizen Savings Scheme is higher than rates offered by many banks, the Senior Citizen Savings Scheme is a good investment option for retired persons who need regular income, says Ramalingam. “As it is a government scheme, it is also risk-free," he adds.
Premature closure of the Senior Citizen Savings Scheme
This facility is allowed in the Senior Citizen Savings Scheme after one year on deduction of an amount equal to 1.5% of the deposit and after two years 1% of the deposit. In case the account has been extended, it can be closed at any time after expiry of one year of extension without any deduction.
From April this year, senior citizens can claim deduction for interest on any deposit with the post office or banks up to ₹ 50,000 in a financial year.