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The Senior Citizen Savings Scheme (SCSS) is suggested as one of the alternatives for the elderly to invest their money, especially from their retirement benefits. Let’s understand  Senior Citizen Savings Scheme (SCSS) in detail. Who can invest? How much can one invest? What is the interest rate on Senior Citizen Saving Scheme? How it is calculated? TDS & Income Tax on Senior Citizen Saving Scheme?

What is Senior Citizen Savings Scheme or SCSS?

Senior Citizen Savings Scheme (SCSS) is a five year scheme which was introduced in the Oct 2004. This scheme provides interest at around 9% p.a at quarterly interval, which is taxable.  The  SCSS is safe as the scheme is backed by the Government of India, making it totally risk-free with guaranteed returns.

Who can invest?

As the name suggests SCSS is for Senior Citizens. The investment may be opened by an individual, in individual capacity or jointly with spouse, if

  • One has attained age of 60 years or above on the date of opening of the account.
  • One  has attained the age 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of opening of the account within three months from the date of retirement. The account has to be opened by such individual within three months of the date of retirement.
  • There is No age limit for the retired personnel of Defence services(excluding Civilian Defence Employees) provided they fulfill other specified conditions.

The Senior Citizen Savings Scheme account can not be opened by Non-Resident Indians (NRI), Persons of Indian Origin (PIO) and Hindu Undivided Families (HUF).

What is the maximum amount or minimum amount that can be invested in SCSS?

  • The maximum amount that can be deposited in senior citizen saving scheme (SCSS) is restricted to the retirement benefits received by the person or Rs. 15 Lakh (whichever is lower).
  • Minimum amount is Rs 1,000. Any amount between Rs. 1,000 and Rs. 15 Lakhs can be invested in multiples of Rs. 1,000.

Source of Funds to be invested in SCSS?

To invest in Senior Citizen Savings Scheme

  • For people between 55 and 60 years of age, the amount invested in SCSS has to come from their retirement benefits and that too within three months of retirement.
  • For persons over the age of 60 years, there is no restriction on the source of funds to be invested.

Retirement benefits for the purpose of SCSS Rules have been defined as any payment due to the depositor on account of retirement whether on superannuation or otherwise and includes Provident Fund dues, retirement / superannuation gratuity, commuted value of pension, cash equivalent of leave, savings element of Group Savings linked Insurance scheme payable by employer to the employee on retirement, retirement-cum-withdrawal benefit under the Employees’ Family Pension Scheme and ex-gratia payments under a voluntary retirement scheme.

What happens after Senior Citizen Saving Schemes matures?

The Senior Citizen’s Savings Scheme has a maturity of 5 years from the date of opening the account.

  • On maturity, the depositor can either withdraw the money by submitting an application in Form E along with the passbook or
  • extend the account by another three years by submitting an application in Form B within one year. The extension will be from the date of maturity and not from the date of submitting the form. The interest rate for the first five years is based on rates prevailing at the time of your investment. However, the rate of interest for the extended term of three years will be based on the prevailing interest rate on the date of maturity of your account. The Indian government revises the rate of interest on SCSS on a quarterly basis.

If the depositor doesn’t close the account on maturity or ask for an extension within a year, the account will be treated as closed. However, the maturity amount will earn interest rate applicable on post office saving account.

If you want to open a new account with the maturity amount after eight years, you are free to do so.

On maturity after five years, the Senior Citizen Savings Scheme (SCSS) account can be extended by another three years.

Interest and Senior Citizen Savings Scheme  SCSS

Who decides the interest rate in Senior Citizen Savings Scheme , SCSS?

Interest Rate on Senior Citizen Saving Scheme is decided by the Govt of India and it keeps on changing every quarter. The interest is computed and paid out every quarter on 31st March, 30th June, 30th September and 31st December. Interest rate on SCSS over time is given below. 

Period Interest Rate
Upto 31.03.2012 9.00% per annum
01.04.2012 to 31.03.2013 9.30% per annum
01.04.2013 to 31.03.2014 9.20% per annum
01.04.2015 to 31.03.2016 9.30% per annum
01.04.2016 to 30.09.2016 8.60% per annum
01.10.2016 to 31.03.2017 8.50% per annum
01.04.2017 to 30.06.2017 8.40% per annum
01.07.2017 onwards 8.30% per annum

How is interest computed in Senior Citizen Scheme?

The interest is computed and paid out every quarter on 31st March, 30th June, 30th September and 31st December.If the interest payable every quarter is not claimed by a depositor, such interest do not earn additional interest. For the first time it is paid from the date of deposit to 31st March/30th June/30th September/31st December and then every quarter.

Interest is rounded off to the nearest multiple of one rupee. Any amount equal to or more than fifty paisa is treated as rupee one and any amount less than fifty paisa will be ignored.

To calculate quarterly payment, interest rate p.a is divided by 4 and multiplied by principal amount. . So if one invests Rs 1,00,000 on 1 Oct 2012 when interest rate was 9.30%, every quater the person would receive (P * R/(4 * 100)) =1,00,000 * 9.30/(4* 100)= 100000 *(2.325/100) = 2325.

What are the options on maturity of SCSS?

As mentioned earlier, the Tenure of Senior Citizen Saving Scheme is 5 years from the date of opening the account. On maturity the options before the individual.

  • One can close the account and withdraw the amount in SCSS by submitting Form E along with the passbook.
  • SCSS can be further extended for a period of 3 years by submitting Form B within 1 year from the date of maturity. Please note that the extension shall come into effect from the date of maturity and not from the date of submission of application.
  • If the depositor neither closes the account on maturity nor requests for extension within 1 year, the account shall be treated as matured. They can close the account at any time.  Interest on the account will be paid at the rate applicable to the deposits under the Post office Savings Accounts, upto the end of the month preceding the month of the closure of the account.

Income Tax and Senior Citizen Savings Scheme SCSS 

The principal, i,e investment under SCSS, qualifies for the benefit of Section 80C of the Income Tax Act, 1961. Remember that 80C has limit of 1.5 lakh and includes EPF ,PPF, Insurance etc. Section 80C benefit is available in the financial year in which the deposit is made in SCSS. As per SCSS Rules, only one deposit is allowed in one SCSS account. There will be no additional benefit under Section 80C for the remaining years or extension of an existing account after five years 

The interest earned on the deposit is fully taxable as per senior citizen income slab. TDS can be deducted on interest earned if it exceeds the minimum limit prescribed by the Government which currently is Rs 10,000 and TDS is 10%.

So if a senior citizen is in 30% tax bracket, invests 15 lakh and interest earned on his investment in the financial year will be 34,875. As it is more than 10,000, therefore, TDS will be deducted at 10% i.e 3487.50 and he gets 31,387.5. He still needs to pay remaining 20% of tax.

If senior citizen income is below the exemption limit, he can provide form 15H(for more than 60 years) or 15G(for less than 60 years) so that no tax is deducted at source. If due to some reasons TDS is deducted he can claim only by filing the Income Tax Return and asking for refund. Our article Income Tax rates Since AY 1992-1993 and Senior Citizen : Income and Tax discuss it in detail.

Joint Account in SCSS

The account can be opened as a single account, or can be opened in joint names.  In case of joint account

  • The joint account holder can only be the spouse. 
  • There is no age limit applicable for the joint account holder (spouse). In case of a joint account, the age of the first applicant is the only factor to decide the eligibility to invest under the scheme.
  • In case of the death of the primary account holder, the spouse can continue the account subject to the condition that his or her total investment in SCSS should not exceed Rs. 15 Lakhs.
  • The whole amount of investment in an account under the scheme is attributed to the first applicant or depositor only. As such, the question of any share of the second applicant or joint account holder (i.e. spouse) in the deposit account does not arise.
  • Both the spouses can open individual and  or joint accounts with each other with the maximum deposits up to Rs. 15 lakh each, provided both are individually eligible to invest
  • In case of a joint account, if the first holder expires before the maturity of the account, the spouse may continue the account on the same terms and conditions as specified under the SCSS Rules. However, if the second holder i.e. spouse has his / her own individual account, the aggregate of his/her individual account and the deposit amount in the joint account of the deceased spouse should not be more than the prescribed maximum limit i.e 15 lakh. In case the maximum limit is breached, then the remaining amount shall be refunded, so that the aggregate of the individual account and deceased spouse’s joint account is maintained at the maximum limit.
  • If both the spouses have opened separate accounts under the scheme and either of the spouses dies during the currency of the account(s), the account(s) standing in the name of the deceased depositor/spouse shall not be continued and such account(s) shall be closed. The account can be closed by making an application in Form F. Annexures II & III to Form F can be attested by the Oath Commissioner or Notary Public

Premature or Early Withdrawal in SCSS

The amount can be withdrawn before the maturity date, provided the deposit is at least 1 year old. But early withdrawal carries penalty as follows:

  • Account age between 1 and 2 years: 1.5% of the deposit amount
  • Account age over 2 years: 1% of the deposit amount

Loan or Pledging of SCSS

One can not obtain a loan against the SCSS account by pledging it.

Nomination of SCSS

Nomination facility is available for the Senior Citizen Savings Scheme.The depositor may, at the time of opening of the account, nominate a person or persons who, in the event of death of the depositor, will be entitled to payment due on the account.

  • Names of one or more persons can be specified as nominees.
  • Nomination can be done even after opening the account.
  • The nomination can also be changed or cancelled later by filling Form C.
  • In case of joint account, the joint holder is entitled to the amount in case of death of the primary account holder. The nominee(s) would have a claim only after the death of both the joint holders.

Comparing SCSS to Bank Fixed Deposits

The SCSS scores over bank fixed deposits on two counts: default risk and return. Average fixed deposit return is 6-7 per cent per year, while the SCSS currently gives 8+ per cent, compounded quarterly. The SCSS has sovereign guarantee while bank fixed deposits are insured only up to Rs 1 lakh per branch.

Where to open an Account for SCSS?

Any head post office or general post office or  Select branches of the 24 designated nationalized banks:

State Bank of India, State Bank of Hyderabad, State Bank of Indore, State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Saurashtra, State Bank of Mysore, State Bank of Travancore, Allahabad Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Punjab National Bank, Syndicate Bank, UCO Bank, Union Bank of India, United Bank of India, Vijaya Bank and ICICI Bank.

How to Open an SCSS Account?

Once you have selected the post-office/bank to open the SCSS account, you will first need to open a savings bank account and you will need the following documents:

  • An account opening form which the bank will provided.
  • Two passport size photographs.
  • Address and identity proof such as copy of the passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, voter’s identity card or ration card.
  • Carry original identity proof for verification at the time of account opening.

On opening of an account, the depositor is given a pass book immediately, alongwith the depositor’s copy of the pay-in-slip (Form-D) duly stamped and signed by the deposit office.

Transfer of Account 

A depositor can transfer his account from one deposit office to another by filling in Form G and enclosing the Pass Book. If the deposit amount is rupees one lakh or above, a transfer fee of rupees five per lakh of deposit for the first transfer and rupees ten per lakh of deposit for the second and subsequent transfers shall be payable.

Ref : electronic version of the Senior Citizens Savings Scheme Rules, 2004 (pdf) with Forms at Finance Ministry website, SCSS FAQ at RBI website

Related Articles:

All about Senior Citizen and Retirement, Income Tax, Form 15H,Will

The main objective of the SCSS is to provide an assured 9+per cent return paid every quarter to senior citizens which helps them to create a guaranteed regular income flow.  The SCSS is a good option for senior citizens. What do you think? Have you or your parents invested in Senior Citizen Savings Scheme or SCSS.