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Jun 20, 2017 11:35 AM IST | Source:

Senior citizen saving scheme is a huge boon

If you are a non resident Indian (NRI) or person of Indian origin (PIO), you are not eligible to invest under this scheme.

Balwant Jain

With rising costs of living and reducing interest rates for almost last 15 years, senior citizens are hard hit. In order to give relief to senior citizens the government has been introducing schemes. In 2004 the government had introduced Senior Citizen Saving Scheme (SCSS). In this article I shall discuss various features of SCSS.

Who can open the account under SCSS

If you have completed 60 years of age, then you can open this account with post office or designated banks, in your individual name or jointly with your spouse. Only spouse can be made joint account holder under this scheme. Your spouse can also individually open an account under this scheme provided he or she fulfills the age criterion. So account in the name of HUF under this scheme cannot be opened.

You can also appoint one or more nominees in respect of this account either at the time of opening the account itself or anytime thereafter. The account holder can modify or cancel the nomination any number of times during currency of the Senior Citizen Saving Scheme account.

In case you have retired on superannuating or taken voluntary retirement then you can also invest in the scheme provided you have completed 55 years of age at the time of your retirement. If you are retired personnel of defense services, the restriction on age for opening the account does not apply. In either of the case, whether you have taken VRS or have retired from defense services. You need to open this account within a period of one month from the date of receipt of your retirement money with proof of disbursal. The money to be invested under this scheme should be the money received as retirement benefits under the terms of such retirement.

If you are a non resident Indian (NRI) or person of Indian origin (PIO), you are not eligible to invest under this scheme.

You can invest up to Rs 15 lakh under this scheme either by opening a single account or a joint account with your spouse. Unlike the Post Office Monthly Scheme, the maximum amount you can invest here is calculated with reference to the name of the sole or first account holder. Since the eligibility of first holder is only considered, it is not necessary that the spouse should also have completed the age of 60 years for joining as second account holder under this scheme.

Tenure and premature withdrawal

The account opened under this scheme is for a period of five years initially and can be extended for another period of three years. In case you want to withdraw the money before completion of the term of five years, you can do so only after completion of one year and that too with a penalty. If the account is closed after completion of one year but before completion of two years, an amount equal to 1.5 percent is deducted from the deposit. In case the account is closed after completion of two years, the penal deduction is equal to 1 percent.

This is pertinent to note that as per the scheme, no part of deposit can be withdrawn during the first year of its operation. Therefore, it is advisable that you assess your financial requirement including for contingency for the first year and keep aside the same. This absolute lock-in period of one year is quite stringent considering that you are not allowed to either pledge it or take any loan against it.

Rate of Interest and Taxability

Interest under this scheme is decided every quarter by the government in advance. Presently, the rate of interest for this scheme is 8.4 percent. The scheme pays you interest quarterly. The payment of first interest is adjusted so as to make all the subsequent payments quarterly.

The interest earned on this scheme is fully taxable in your hand and 10 percent TDS will be applicable at the time of payment of interest if the interest for the whole year is more than Rs 10,000 in a year. However, you can submit form no 15H in case you have completed 60 years of age or 15 G if you have not completed 60 years of your age to get interest without deduction of tax. You can also make an application to the income tax officer for issuing you a certificate for no deduction or lower deduction of tax and the paying bank will deduct the tax accordingly.

What happens in the event of death of the account holder?

In case of any eventuality, the money lying in a single account becomes payable to legal heirs and is paid immediately to the nominee if nomination has already been filed with the administrative branch.

In case of a joint account, the money gets transferred to the spouse who is named as second account holder. However, the aggregate amount being transferred together with money already lying in the accounts of the spouse should not exceed the overall eligible limit of Rs 15 lakh. In case it exceeds this threshold, the excess amount will be refunded to the joint holder immediately.

The above scheme helps you to earn a good return on your investment without risking your capital in anyway. This also ensures cash flow at regular intervals. Moreover as senior citizen can you claim deduction of up to Rs 1.50 lakh each year under Section 80C, in respect of money deposited made under senior citizens saving scheme rules, 2004. This provision is significant when other avenues for claiming tax deductions under Section 80 C like life insurance premium, payment towards pension plan, contribution to PPF account, ULIP etc. no longer workable or remain attractive to senior citizens.

I am sure this discussion will help you in better organizing your savings.

(Balwant Jain is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. He can be reached at
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