The Government of India introduced the Senior Citizen Savings Scheme (SCSS) in 2004, intending to provide senior citizens with a steady and secure source of income for their post-retirement phase. The scheme is for senior citizens and the deposit is with a five year tenure.
With the announcement of a higher limit of deposit amount during the Finance Minister’s budget speech and also due to the recent upward revision of interest rate on the scheme, the SCSS has become attractive for senior citizens. In a way, this scheme scores higher points on various parameters like quantum of interest, periodicity of interest, liquidity, and comfort, and senior citizens must use this avenue for their regular income from fixed income securities.
Let us see how this scheme scores better over other similar schemes.
From April 1, 2023, investment under this scheme attracts 8.2 per cent per annum. When we compare Public Provident Fund (PPF) interest of 7.1 per cent per annum, or National Savings Scheme (NSS) interest of 7.7 per cent per annum or Monthly Income Scheme interest of 7.4 per cent per annum or Kisan Vikas Patra interest of 7.5 per cent per annum, the SCSS interest is most attractive.
This interest rate is also better than the fixed deposit rates provided by most banks and taking into account that the scheme is from the Government of India, it has got the highest safety.
Once invested, the interest rate cannot change throughout the tenure of the scheme, unlike PPF, which may vary every quarter. The interest rate declared during the time of investment remains fixed throughout the maturity tenure and is not affected by alterations in a later quarter, whereas the interest rate offered on the PPF is not fixed but it is linked to the 10-year government bond yield.
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Interest on SCSS is calculated and paid at quarterly intervals. The effective annual interest works out to 8.46 per cent. For PPF and NSC, the interest is calculated with annual rests and this makes a significant difference in the earning.
Quantum of investment
During the recent budget, the FM has increased the maximum amount of deposit from ₹15 lakh to ₹30 lakh. This will help the senior citizens to park a major part of their savings with absolute safety. PPF has an annual limit of ₹1.50 lakh deposit amount.
Interest income from this scheme is indeed taxable like income from bank FDs, or NSCs or KVPs. However, the interest income from PPF is tax free. But, as there is a limit for yearly deposit in PPF account, naturally there will be some limit for the balance in the PPF account.
In case the interest amount earned is more than ₹50,000 for a fiscal year, Tax Deducted at Source (TDS) is applicable to the interest earned. The principal amount deposited in SCSS is eligible for a tax deduction of up to ₹1.5 lakh per annum under Section 80C of the Income Tax Act, 1961.Tax payers who are opting for the Old I-T Scheme can take this benefit. This benefit under SCSS is similar to PPF, NSC, and bank FD (under Sec 80C).
There is an exit option available. However, no interest will be payable and if any interest is paid in the account it will be recovered from principle if an exit from the scheme occurs before completion of one year from the date of account opening.
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If the account is closed after one year but before expiry of two years from the date of opening of the account, an amount equal to 1.5 per cent of the deposit shall be deducted.
If the account is closed on or after the expiry of two years from the date of opening of the account, an amount equal to 1 per cent of the deposit shall be deducted.
The account can be easily opened with post offices or with designated banks by individuals of and above the age of 60 years. Individuals who are 55 years old who have taken VRS can also open and retired defence personnel of 50 years can also open.
A joint SCSS account can be opened with the spouse. There is no age criteria for the spouse.
Senior citizens can consider SCSS over other schemes with the present interest rate of 8.20 per cent, which beats the inflation rate. They can also invest up to ₹30 lakh now.
(The writer is a retired banker. The views expressed here are his own, and do not constitute investment advice.)