SCSS: The safest option for senior citizens that delivers returns and saves on taxes

Senior citizens, people retiring in the middle of the COVID-19 pandemic or taking early retirement (age above 55 years) would be in search of a safe haven investment that saves on taxes too.

Interest rates on small-saving schemes as well as bank fixed deposits have declined steeply over the past one year, though they are still better than those on bank deposits.

In this regard, the senior citizen savings scheme (SCSS) of the Government of India (GOI) can be a healthy investment vehicle for the elderly.

You can invest a minimum of Rs 1,000 and in multiples thereof. The maximum amount that can be invested is Rs 15 lakh. The tenure of SCSS is five years, comparable to the NSC and five-year bank fixed deposits. The tenure can be extended by another three years within a period of one year after maturity.

Who can invest in SCSS?

Since the scheme is meant only for senior citizens, those aged 60 and above can invest in the SCSS. It is also open to those who have taken early retirement or VRS over the age of 55. But you have to open your SCSS account within one month of receipt of retirement benefits in case you took VRS. The investment amount should not exceed the amount of retirement benefits. For those over 60, though, it doesn’t matter where you get the money from. You can open a joint account; only the first holder’s age is relevant.

Non-resident Indians (NRIs) cannot invest in SCSS.

What is the current interest rate?

The current interest rate is 7.4 per cent. Interest is calculated on a quarterly basis and credited to your savings account every quarter, on the first working day of April, July, October and January. In case you invest in the middle of a quarter, the interest will be calculated based on the number of days invested in the on-going quarter. Once you invest, the interest rate remains unchanged for the five-year term. However, while extending the SCSS account on maturity, the then prevailing interest rates will be applicable.

Do I get any tax benefits?

Yes. Investments in SCSS up to Rs 1.5 lakh are eligible for deduction under Section 80C of the Income Tax Act. So, your taxable income goes down to the extent of the amount you invest in SCSS. However, if you prematurely withdraw from SCSS, the tax benefits get withdrawn as well. You will need to add back the redemption amount to your taxable income.

SCSS interest income is taxable. If interest income exceeds Rs 10,000 a year, there will be tax deducted at source. However, as a senior citizen, you can claim a deduction from taxable income for interest income of up to Rs 50,000 in a year under Section 80TTB of the Income Tax Act.

Can I open SCSS account online?

No, banks and post offices do not provide the facility of opening the SCSS account online. You can open an account from selected branches by submitting the application form and know your customer (KYC) documents – identity, address and age proofs, and a cheque or demand draft for depositing the amount.

Can I open multiple SCSS accounts?

Yes, you and your spouse can open multiple individual and/or joint accounts. The maximum deposit amount is Rs 15 lakh. The details of existing SCSS accounts are asked for in the application form while opening the new account.

In case of a joint account, if the first account holder dies before maturity, can the account can be continued?

In case of a joint account, if the first holder expires before the maturity of the account, the spouse may continue the account on the same terms and conditions as specified under the SCSS Rules. However, if the surviving spouse has an own SCSS account, then the bequeathed SCSS amount will need to be clubbed with the spouse’s own other existing SCSS accounts to see if the eligible Rs 15 lakh per account limit has been breached.

Is premature withdrawal allowed?

Yes, you can withdraw the amount prematurely after a period of one year, on which you will have to pay a charge of 1.5 per cent of the deposit. If you withdraw after two years, you will have to pay 1 per cent.