Senior Citizen Savings Scheme (SCSS): Should you invest in this high interest paying government scheme or wait?

Senior Citizens Savings Scheme (SCSS) is a government-backed savings instrument offered to individuals aged over 60 years. The maturity period of SCSS is five years. However the tenure can be extended by three more years after the maturity period of five years is over. 

Senior Citizens Saving Scheme (SCSS) deposit limit to double from 1 April 2023

The Finance Minister Nirmala has announced to extend the maximum deposit limit for the Senior Citizens Saving Scheme. From 1 April 2023, the senior citizens saving scheme will be extended for a deposit account of ₹30 lakh from ₹15 lakh, announced the Finance Minister, while presenting the Union Budget on 1 February 2023.

SCSS interest rate

Current interest rate is 8%, payable quarterly on 1st working day of April, July, October and January. Finance Ministry review the interest rate in every quarter. Interests are paid on a quarterly basis — the first working day of April, July, October and January.

What are the tax implications of SCSS?

Amount deposited under SCSS qualifies for tax deduction under Section 80C of IT Act. Interest earned on SCSS is fully taxable.

In the last rate revision, the government increased the Senior Citizen Savings Scheme (SCSS) for the January-March quarter of FY2022-23 to 8 per cent per annum.

Interest rates of small savings schemes are likely to reach near peak in March 2023

Vinit Khandare, CEO & Founder, MyFundBazaar said the March 2023 review will be a good time to assess the interest rate scenario. One factor which will matter the most will be the direction of retail inflation. Any spike in inflation would mean that the central bank will be under pressure to raise rates further. For the interest rate hike cycle to get over the recent reduction in retail inflation should remain below RBI’s upper tolerance level 6% during the next 3 months. 

If it happens, the interest rates of small savings schemes are likely to reach near peak in March 2023 review of these rates by the government, he added.

Wait and watch approach

According to Vinit Khandare, it may be a better strategy for investors who prefer SCSS to wait for two more quarters and assess the scenario before investing their deposits for the long term, as it is bound to be revised upwards. Such a wait and watch approach may offer a better visibility and well-informed financial decision.

Senior citizens were the worst affected lot when interest rates on fixed deposits nosedived to historical lows in 2020.

During those times, the Senior Citizen Savings Scheme (SCSS) was a big support as it was offering an interest rate of 7.4%