Senior Citizens Savings Scheme Fetch Better Interest Rate Than FDs

After retirement, people look for investment avenues to park their retirement corpus in. They are hesitant to put their hard-earned money in equities, which carry capital loss risk, or products which come with a long lock-in period and don't offer any income till maturity.

Retirees prefer products that are less risky and can also minimise their tax outgo. This is where SCSS comes in. The scheme offers capital protection, along with quarterly interest payment as a source of income and provides a sovereign guarantee.

Senior Citizens Savings Scheme (SCSS) got launched in 2004 is one of the social security or small saving scheme offered by the central government. The scheme is available for several public, private sector banks and India post offices across India.

Who can invest in SCSS?

As the name suggests, anyone over the age of 60 years can avail it. People who have taken voluntary retirement scheme (VRS) for them the age limit is lowered to 55 years and defence personnel who are above the age of 50 years can also avail this scheme.

However, non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not allowed to invest SCSS.

SCSS Interest Rate

The SCSS has the highest interest rate among the various small savings schemes in India. Currently, the interest rate has been set at 8.6% as of the October December quarter of 2019. The interest rate for this scheme is compounded quarterly. If you open an SCSS account with your bank and link it to your existing bank account, you can instruct to get the interest to be credited directly to your bank account. Interest income from SCSS can also help retirees bridge the gap between their pension and the last salary is drawn.

Maturity Period

SCSS accounts have a tenure of five years, and this can also be extended by three more years after it matures. However, if you decide to close the account before the maturity period, there is a penalty to be paid.

If you close the account before the completion of 2 years since your account opening, then you will be charged 1.5 percent of the deposit as a penalty. But if you close the account after completion of two years, then the penalty is dropped to 1 percent of the deposit.

If the depositor passes away, no charges or penalty is deducted for the premature closure of the account.

How to Open an SCSS Account

To open an SCSS account, you need to go to one of the authorised bank or post office branch across India.

Documents to be submitted

1. Identity Proof – PAN Card or Passport

2. Address Proof – Telephone Bill or Aadhaar Card

3. Age Proof – Passport, Voter ID, PAN Card or Birth Certificate

You will also need two passport size photographs. You need to fill up Form A and submit it for opening an SCSS account. All the document needs to be self-attested. You can get the account opening form which you need to fill up at the bank or post office itself.

You can open an SCSS account with a minimum deposit amount of Rs 1000 and can deposit up to Rs 15 Lakh. The deposits, however, need to be in multiples of Rs 1000. Other than individual accounts, the banks also offer the option of opening joint accounts say with your spouse.

Taxation Benefits

Investment in SCSS qualifies for deduction under Section 80C of the Income-tax (I-T) Act. But there is a tax deducted at source (TDS) on the interest payment if the amount is more than Rs 10,000 per annum as per current tax laws.

As far as taxation goes in case of premature withdrawals, people lose the 80C benefit if he withdraws from the scheme prematurely. Still, the benefit is not withdrawn on a retrospective basis for the year of the deposit.

Instead, the principal amount withdrawn, along with interest paid in the year of the withdrawal is added to the individual's gross total income in the year of the premature withdrawal.