If you are a senior citizen looking for a safe and secure investment option to earn a regular income after retirement, you might want to consider the Senior Citizen Savings Scheme (SCSS). SCSS is a way for people over 60 to save money that is backed by the government. The Indian government started this programme in 2004 with the goal of giving senior citizens a steady and safe way to make money after they quit.
SCSS is a post office savings scheme, which means you can open an account at any post office branch or authorized bank in India. You can invest a lump sum amount in SCSS, individually or jointly with your spouse, and get access to quarterly interest payments along with tax benefits. The interest rate for SCSS is fixed by the government every quarter and is usually higher than other fixed income instruments. For the second quarter of the financial year 2022-23, the interest rate for SCSS is 7.4% per annum. For updates on interest rate, please refer to this link.
Let us look at some of the features, benefits, eligibility, and tax implications of SCSS in detail.
Features of SCSS
- Tenure: The maturity period of SCSS is 5 years. However, you can extend the scheme for another 3 years by submitting an application in the prescribed format within one year of the maturity date. You can only extend the scheme once.
- Minimum and Maximum Investment: The minimum amount you can invest in SCSS is Rs. 1,000 and the maximum is Rs. 30 lakh. The deposits can be made in multiples of Rs. 1,000. The maximum limit is restricted to the retirement benefits received by you or Rs. 30 lakh, whichever is lower.
- Mode of Deposit: You can deposit the money in cash if the amount is below Rs. 1 lakh. If the amount is above Rs. 1 lakh, you have to make the payment by cheque or demand draft.
- Interest Payment: You will receive interest on your SCSS account on a quarterly basis. The interest will be credited to your account on the first day of April, July, October, and January. You can also opt for auto-credit of interest to your linked savings account.
- Premature Closure: You can close your SCSS account before maturity, subject to certain conditions and penalties. If you close the account before 2 years, you will have to pay a penalty of 1.5% of the deposit amount. If you close the account after 2 years but before 5 years, you will have to pay a penalty of 1% of the deposit amount. However, if you close the account after extending it for 3 years, you can do so without any penalty after one year of extension.
- Transfer of Account: You can transfer your SCSS account from one post office or bank to another, free of charge, by submitting an application in the prescribed format.
- Nomination Facility: You can nominate one or more persons to receive the balance amount in your SCSS account in case of your death. You can make the nomination at the time of opening the account or later. You can also change or cancel the nomination at any time.
Benefits of SCSS
- Secure Investment: SCSS is a government-backed scheme, which means your invested amount is safe and there is a guarantee of returns upon maturity. Unlike market-linked investments, which are subject to fluctuations, SCSS is stable and offers assured returns to senior citizens.
- High Interest Rate: SCSS offers a high interest rate compared to other fixed income instruments. Government fixes interest rate every quarter and is usually higher than the prevailing inflation rate. This helps senior citizens to maintain their purchasing power and cope with the rising cost of living.
- Tax Benefits: The principal amount invested in SCSS is eligible for deduction under Section 80C of the Income Tax Act, up to a limit of Rs. 1.5 lakh in a financial year. However, the interest earned on SCSS is taxable as per your income tax slab. If the interest amount exceeds Rs. 50,000 in a financial year, tax will be deducted at source (TDS) by the post office or bank.
Eligibility for SCSS
You can open an SCSS account if you are a resident Indian and have attained the age of 60 years or above.
You can also open an SCSS account if you are 55 years or above but less than 60 years, and have retired under a voluntary or superannuation scheme. However, you have to open the account within one month of receiving your retirement benefits and the deposit amount should not exceed the retirement benefits received by you.
You can also open an SCSS account if you are a retired defence personnel, irrespective of your age, subject to certain conditions. You cannot open an SCSS account if you are a non-resident Indian (NRI) or a person of Indian origin (PIO).
How to open an SCSS account?
To open an SCSS account, you have to visit a post office or a bank that offers this scheme and fill up an application form. You can also download the form from the official website of India Post or the bank.
Submit the following documents along with the application form:
- Identity proof such as Aadhaar card, PAN card, passport, voter ID card, etc.
- Address proof such as Aadhaar card, passport, electricity bill, etc.
- Age proof such as birth certificate, passport, senior citizen card, etc.
- Two passport size photographs
- Cheque or demand draft for the deposit amount, if applicable
You have to pay the deposit amount in cash or by cheque or demand draft and get a receipt for the same. You will also get a passbook for your SCSS account, which will have the details of your account number, deposit amount, interest rate, maturity date, etc.
Conclusion
SCSS is a suitable investment option for senior citizens who want to earn a regular income after retirement with safety and tax benefits. However, before investing in SCSS, you should also consider the liquidity, inflation, and tax implications of the scheme. You should also compare the interest rates and features of other fixed income instruments such as fixed deposits, recurring deposits, monthly income schemes, etc., and choose the one that best suits your financial goals and risk appetite.