Senior Citizens’ Savings Scheme: Excellent Investment for Tax Saving & Regular Income

Senior Citizens’ Savings Scheme (SCSS) is one of the best fixed deposit schemes for Retired Senior Citizens as its safe (backed by Government of India), has assured quarterly payments, gives tax benefit and easy to handle. This post provides details of rules and regulations for SCSS.

Who can open SCSS?

As the name states, anyone with age of 60 years or more can open Senior Citizens’ Savings Scheme account.

This minimum age is relaxed to 55 years for people opting for voluntary retirement (VRS). However person opting for VRS should open the account within one month of receiving the retirement benefits. Also the amount deposited cannot exceed the retirement benefits.

Retired personnel of Defense Services are eligible to subscribe irrespective of the above age limits

Non-Resident Indians (NRI), Persons of Indian Origin (PIO) and Hindu Undivided Families (HUF) are not eligible to open SCSS account.

Also Read: Best Interest Rate on Fixed Deposits for Senior Citizens

How to Open SCSS Account?

You will need to approach any of the authorized bank or post office branch with following documents:

• Filled up Form A for opening SCSS Account
• Identity and Address proof such as PAN Card, Passport, etc. These are documents required for normal KYC in banks.
• Age Proof Document such as Passport, Senior Citizen Card, Birth certificate issued by MC/Gram Panchayat/District office of registrar of births and death, Voter ID card, PAN card, Ration card, Date of birth certificate from the school or Driving license
• Passport size photographs

The above documents should be self attested

Also Read: 5 changes in Income Tax laws from April 1, 2019

It’s good idea to carry the original document for verification by bank officials.

On submitting the filled up SCSS account opening form along with required documents, bank would open the account and provide with the Pass Book and acknowledgement of the amount deposited for the same.

Authorized Banks for SCSS Account:

The Senior Citizens’ Savings Scheme Account can be opened at any of the Post Offices, 20 PSU banks and ICICI Bank. Below is the list of Banks:

Also Read: Pensioner Claim Tax Benefit for Rent Paid u/s 80GG

Transfer of Account:

The SCSS account can be transferred from one branch to the other by filling up Form G. For deposit amount of more than Rs 1 lakh a transfer fee of Rs 5 per lakh is charged for the first transfer. For subsequent transfers the transfer fee is Rs 10 per lakh.

There is no transfer fee for deposit amount of less than Rs 1 lakh.

Investment Limit:

A person can invest maximum of Rs 15 lakhs in Senior Citizens’ Savings Scheme. You can open multiple accounts and joint account with your spouse only but the total investment across all accounts cannot exceed Rs 15 lakhs.

Spouses can open separate accounts with Rs 15 Lakh limit for each of them. So a couple can invest maximum of Rs 30 Lakhs.

The minimum investment is Rs 1,000 and can be increased in multiples of Rs 1,000 thereof.

Amount below Rs 1 Lakh can be deposited in cash while any amount above that has necessarily be deposited using cheque.

Also Read: How to Calculate Income Tax for Senior Citizens?

Joint Account:

You can open joint account for SCSS with the following conditions:

1. The joint account can only be opened with spouse (husband/wife).
2. The age criteria are applicable only for the first holder of the account. The age of second holder does not matter.
3. In case of death of first account holder, the account can be continued by second holder if the total investment in SCSS by second holder does not exceed Rs 15 Lakhs limit. In case the Rs 15 Lakh limit is breached, the amount exceeding Rs 15 lakh is refunded to keep the deposit within the investment limit.
4. Spouses can open separate accounts with Rs 15 Lakh limit for each of them subject to their individual eligibility. So a couple can invest maximum of Rs 30 Lakhs.
5. The interest income and hence tax liability arises for the first holder only.

Interest Rate:

The interest rates offered on SCSS is 1% above 5 year government bond yields and is reset at the start of every financial year (April 1). From April 1, 2016 the interest rate on SCSS would be reset every quarter i.e. in April, July, October and January.

For FY 2019-20 (April to June 2019) the interest rate is 8.70%. Check latest and historical interest rates here

Once invested the interest rate remains unchanged over the tenure of the deposit.

Also Read: Best Tax Saving Investments u/s 80C

Interest Payment:

The interest earned is paid on the last working day of every quarter – March 31, June 30, September 30, December 31. The payout date remains constant irrespective of date of deposit.

The payment can be made directly to depositor’s account through ECS or post dated cheques.

Also Read: Where to Park Money for Very Short Term?

Maturity:

Senior Citizens’ Savings Scheme matures at the end of five years from the date of deposit. There are 3 options on maturity:

1. Withdraw the amount by filling up Form E and submit the same along with Passbook.

2. The scheme can be extended by 3 years after maturity by submitting required Form B within 1 year of maturity. The extension is considered from the date of maturity and not from the date of submitting form.

3. In case the amount is neither withdrawn nor requested for extension with in 1 year of maturity, the account shall be treated as matured. The money can be withdrawn anytime after that. You would be paid interest applicable to Post office Savings Accounts (currently at 4%) from the date of maturity to the month preceding the withdrawal.

Also Read: 21 Hidden Charges in Saving Bank Account

Early Withdrawal Penalty:

In case of emergency, an investor can foreclose the account after one year of opening it. The penalty for doing so is as follows:

• Within one year of opening SCSS Account – Cannot be closed
• Between one to two years of account opening – 1.5% of amount in SCSS account
• There is no penalty in case the account is closed in the extension period after maturity period of 5 years.

Also no loan is available against SCSS deposit.

Also Read: 13 Investments to Generate Regular Monthly Income

Nomination:

Nomination can be made at the time of opening of account any time thereafter by filling Form C. Nomination is also possible for Joint account. But in case of joint account, the money would be passed to the survivor of the joint holder. Nomination would come in effect only on death of both the joint holders.

Tax Benefit, Taxation and TDS:

The investment up to Rs 1.5 lakhs in Senior Citizens’ Savings Scheme is eligible for tax deduction u/s 80C.

However the interest earned is fully taxable. The interest income is added to the income of the investor and taxed according to the marginal tax rate.

TDS (tax deduction at source) is deducted @ 10% of interest paid in case the annual interest is more than Rs 50,000 in a financial year. However if your total income for the year is below exempted limit of income tax, you can submit form 15H (for more than 60 years) or 15G (for less than 60 years) to the concerned bank/post office to avoid TDS hassles.

Download: Free ebook for Income Tax Planning for FY 2019-20

Download SCSS Forms:

You can download the following Senior Citizens’ Savings Scheme forms from Ministry of Finance Website:

• FORM A – For opening of SCSS
• FORM B – For extension of account after maturity
• FORM C – For Nomination
• FORM D – Pay in Slip for depositing money
• FORM E – Withdrawal on Maturity/ Premature closure of account
• FORM F – Withdrawal due to death of account holder

The Good:

• The deposit is safe and there is no default risk as it’s backed by Government of India
• The interest rate is attractive and almost par with what major banks offer to senior citizens
• Fixed Quarterly payout means good source of regular income
• Eligible for tax deduction u/s 80C

Download: Excel based Income Tax Calculator for FY 2019-20 (AY 2020-21)

The Bad:

• The interest income is fully taxable
• TDS is major point of contention for senior citizens as many of them do not have taxable income after retirement.
• Penalty on closure of account before maturity.

To conclude:

Senior Citizens’ Savings Scheme is a good scheme for retired people looking for regular timely payouts. However this might not suit people in higher tax bracket as the interest income is fully taxable. They might want to evaluate systematic withdrawal plan in debt fund or tax free bonds.

Have you invested in SCSS for yourself or for your parents?