Senior Citizen Savings scheme extends better prospects – Expert View


All retired senior citizens are experiencing a difficult phase and are not fully able to meet both ends due to the unprecedented events across the globe. The interest rates by banks on fixed deposits have diminished to around 6%. Even though the private banks and corporates give a higher rate, they cannot jeopardize their limited resources there.

In light of such a situation, the government-backed Senior Citizen Savings Scheme (SCSS) extends better prospects. The salient highlights of SCSS are as follows;

Eligibility to deposit in SCSS

Only an individual resident under FEMA (Foreign Exchange Management Act) over 60 years can open an account under SCSS. The account so opened can either be single or a joint account with spouse only. One can start an SCSS account with the post office or the assigned branches of authorized banks.

For those who have chosen voluntary retirement can start this account even before the completion of 60 years of age, but not before completing 55 years. In such cases, the account has to be started within one month from the date of receipt of the retirement benefits. In the case of retired personnel of defense services, the account can be started even after 50 years of age. The deposits made by those below 60 years shall be limited to retirement benefits but maximum up to 15 lakh.

Nomination and closing of account on the death of the account holder

Allowed to make nominations in support of one or more persons. The nomination can be set initially or can be made, revoked, or altered anytime throughout the life of an account holder.

Limit on deposit of money under SCSS

One is permitted to hold deposits of maximum Rs 15 lakh. Hence one can deposit Rs 15 lakh at one go or over a period of time. The ceiling of Rs 15 lakh is calculated with reference to the first holder only.

Tenure and early withdrawal

The SCSS has a primary tenure of five years, which can be prolonged only once for a period of three years. During the term of the account, you are permitted to an early withdrawal of the funds but not before the completion of one year though with some penalty. In case the account is ended before the second year, a penalty of 1.5% of the deposit amount is retrieved. For the accounts ended after two years, the relevant penalty is up to 1%.

Rate of interest

The interest on deposits under the plan is set by the government for each quarter in advance. The rate relevant for the entire tenure is the rate prevailing at the time of making the deposits and will not be subject to revision in the first five years. The interest rate announced for the quarter commencing 1st July 2020 is 7.4%. The interest under SCSS is due quarterly. There is no aggregate choice under SCSS. The first interest is met from the date of making the deposit until the end of the quarter and subsequently for each quarter.

Tax provisions for deposits and interest

The deposits under SCSS are qualified for abatement under Section 80C up to Rs 1.50 lakh each year. This stipulation is notable when other avenues for claiming tax deductions under Section 80C like life insurance premium, payment towards pension plan, contribution to EPF account, ULIP, etc. are no longer functional for senior citizens. The interest received under SCSS is wholly taxable. The bank will deduct tax at 10% if the amount of interest passes Rs 50,000 in a year for senior citizen account holders.


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