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Nov 30, 2012, 01.03 PM IST | Source: Moneycontrol.com

How important is taxation of Senior Citizens Saving Scheme

The Senior Citizens Savings Scheme (SCSS) is meant for those who want a regular source of income in the later years of their life. The various features of the scheme like the quarterly payout are structured in such a manner that they are useful for senior citizens to meet their specific needs.

Arnav Pandya

The Senior Citizens Savings Scheme (SCSS) is meant for those who want a regular source of income in the later years of their life. The various features of the scheme like the quarterly payout are structured in such a manner that they are useful for senior citizens to meet their specific needs. There is however one additional aspect of the entire scheme that often does not get the attention it deserves till it is too late in the day and this is related to taxation of the various aspects. This is the reason that one needs to take a careful look at how this will work out and the impact that will be felt by the senior citizens.

Investment:
The first step consists of investing in to the scheme and this is the area where a tax benefit is immediately visible. The SCSS is included as one of the eligible investments under Section 80C of the Income Tax Act. This means that this becomes one of the instruments where the investments will qualify for a deduction that is available upto a sum of Rs 1 lakh per year. This benefit is something that will be suitable for the senior citizens because this will fulfill two of their needs. One is to have a tax deduction investment that they can actually use through their normal investments and two is that the route would be suitable for them and would not result in them having to buy instruments that do not suit their requirements. In fact the conditions are such that they would facilitate the senior citizens to actually get the kind of cash flow that they need which is very important at this stage in their lives. The benefit here is in the form of a deduction so this means that the amount will reduce the taxable income of the individual. For example if there is a senior citizen who has a taxable income of Rs 2.9 lakh and then invests Rs 50,000 in the SCSS then the taxable income would come down to Rs 2.4 lakh.

Income:
Once the initial aspect of the deduction for the investment is taken into consideration the attention will shift towards the taxability of the other aspects of the SCSS. There is income that is earned by the investments and this can be quite a sum considering that the maximum investible amount in the scheme is RS 15 lakh per individual and the rate of return is 9.3 per cent for investments made currently. When it comes to the question of the taxability of the income then there is no special benefit for the senior citizens as the entire amount right from the first rupee will be taxable in the hands of the individual. This will mean that the figure that is earned here will be included in the taxable income and then the required amount of tax would have to be paid on this figure.

There is another aspect of taxation that will also come into the picture and this is the element of tax deducted at source. This is just a procedural issue and hence the senior citizen has to understand that if they are having some tax deducted then they need to ensure that they get the credit for this when they file their final income tax return. On the other hand if their total income is not taxable then they need to act right at once and ensure that there is no tax deducted at all so that the problem of going back and claiming a refund does not arise at all. This is the situation that they need to face up to and hence this part of the taxation process is also something that will need their attention.

The author can be contacted at arnavpandya@hotmail.com

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