- If you are senior citizen looking for a safe investment that gives regular income, the Senior Citizen Savings Scheme (SCSS) should be your first Port of call. It is as safe as it gets being a small saving scheme that is guaranteed by the government. It offers an attractive interest rate that is invariably superior to most comparable fixed income alternative.
- This effective return is higher thanks to the deduction available under section 80C (up to rupees 1.5 lakh per year).
- Individuals aged 60 or more can open SCSS account. The minimum investment is rupees 1000 and the maximum is rupees 15 lakhs. Only one deposit can be made in an SCSS account. While any number of SCSS accounts can be opened the maximum investment cannot exceed Rs 15 lakhs. Individuals age 55 to 60 can also open and SCSS account within a month of retirement but in this case the investment should not exceed the amount of your retirement benefits. You can open an SCSS account singly are jointly with your spouse the first deposited in the joint account is considered the investor. Both a husband and a wife, if they otherwise qualify, are eligible for opening SCSS accounts individually or jointly, with the limit of 15 lakh each.
- SCSS account can be opened with post offices and some banks. The interest rate on an SCSS deposit at the time of investment stay still maturity. New rates announced each quarter will apply only to investments made in the quarter and will hold till their maturity. The interest rate to change in the April-June 2019 quarter. Like other small saving schemes the rates on SCSS are supposed to be linked to the comparable G-Sec rate, but in practice, that is not always the case.
- The maturity period of SCSS is 5 years, during which the rate at the time of account opening applies. At the end of the 5 years the tenure can be extended for another 3 years at the rate prevailing then will apply for the extended period.
- The application for extension has to be made within a year from the original maturity.
The interest is paid out quarterly – on the first day of April, June, October and January – and is taxable. But as per changes made in budget 2018, interest of up to rupees 50000 a year earned by senior citizens on deposit with bank and post offices is allowed as deduction; SCSS deposits are also covered under this. In effect, income earned on SCSS deposits can escape the tax net to a considerable extend, thus adding to the effective returns of senior citizens.
- For senior citizens, tax will be deducted at source if the annual interest income exceeds rupees 50000. For others, from April 1, tax will be deducted if the annual interest income exceeds rupees 40000. If your estimated tax liability is going to be nil, you can submit form 15G or form 15H to avoid the tax deduction at source.
- Premature closure of an SCSS account is allowed after a year, but 1.5 % of the deposit will be deducted. Premature closure after 2 years will entail a deduction of 1% of the deposit. In case of extension beyond the original maturity period of 5 years, the SCSS account can be closed at any time after 1 year of extension without any deduction.
- NRIs are not allowed to invest in SCSS.