Senior Citizen Savings Scheme: 5 disadvantages of investing in SCSS—interest rate to fixed tenure

5 disadvantages of investing in SCSS: Senior Citizen Savings Scheme (SCSS) is a government-backed savings scheme in India for senior citizens. Any individual above the age of 60 can invest in this scheme, and earn a higher interest rate than bank fixed deposits (FDs). While there are several advantages of investing in SCSS, senior citizens should also know the disadvantages before investing in this scheme. 

Senior Citizen Savings Scheme (SCSS) latest interest rates

Banks and post offices offer an interest rate of 8.2% on the Senior Citizens' Savings Scheme (SCSS). The govt had hiked the interest rate for the April-June quarter from 8 per cent to 8.2 per cent. Once the investment is done the interest rate remains the same throughout the tenure.

Senior Citizen Savings Scheme (SCSS) investment limit

Senior citizens can invest up to ₹30 lakh in this scheme from April 1, up from ₹15 lakh before, as stated by Finance Minister Nirmala Sitharaman in her Budget 2023 presentation. 

The Senior Citizen Savings Scheme (SCSS) offers various advantages for senior citizens who are looking for a safe investment option, but it also has some limitations that one should be aware of before investing

1) TDS on SCSS interest

If the interest accrued in the SCSS account surpasses the threshold limit of ₹50,000 in a financial year, it will be subject to TDS.

“The interest from SCSS deposits becomes taxable if it surpasses the ₹50,000 cap in a financial year, unlike PPF schemes where everything is tax-free,” said Vinit Khandare, CEO and Founder, MyFundBazaar

The account holder can avoid TDS by submitting Form 15G/15H if the accrued interest does not exceed the ₹50,000 limit, said Archit Gupta, Founder and CEO, Clear

Currently, the SCSS deposit limit is ₹30 lakh. If you invest this amount, the quarterly interest will be ₹61,500, and the annual interest will be ₹2,46,000 (at 8.2% interest). Since this amount is above the ₹50,000 limit, TDS will be deducted at a specified rate, added Gupta.

2) Fixed Interest Rate

While the SCSS account has become a very appealing investment choice for senior citizens due to the current interest rate of 8.2%, individuals who created the account earlier at a lesser rate are at a disadvantage. They might close their previous SCSS account and start a new one to take advantage of the present high rate. However, there are fees associated with prematurely canceling an SCSS account.

3) No interest on unclaimed interest income

Each quarter, owners of SCSS accounts must report their interest earnings. You won't receive any further interest on the money if you don't claim the interest that is due each quarter.

4) Limited Age Bracket

Only seniors over 60 years old are eligible to open an SCSS account, which means that private sector employees who want to retire early cannot avail the benefit of the scheme, said Archit Gupta.

5) Fixed Tenure

Investments made in SCSS have a lock-in period of 5 years, and premature withdrawals will attract penalties.

Investments made in SCSS accounts have a 5-year lock-in period. An additional three years can be added to the extension. Some depositors may find it challenging to develop plans based on their goals or for those who may desire to invest simply for a couple of years due to the lock-in term. Due to the lock-in period and the specific penalty for premature withdrawal, certain investors may potentially experience a liquidity crisis, said Vinit Khandare.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.