The Senior Citizen Savings Scheme (SCSS) is often referred to as the best alternative for the elderly to invest their money. Is this justified? Here’s a detailed look at all the features of the Senior Citizen Savings Scheme, and an analysis of whether you should invest in it or not.
What is Senior Citizen Savings Scheme (SCSS)?
The “Senior Citizen Savings Scheme” (or SCSS) is a deposit scheme specially meant for elderly citizens.
Features / Overview of the Senior Citizen Savings Scheme (SCSS)
The investment can be made only by people of 60 years of age or above.
People who have retired on superannuation or under a voluntary retirement scheme can also invest if they are at least 55 years old.
People retiring from defense services are eligible to invest in the scheme irrespective of the age limit, but there are some additional conditions applicable.
The Senior Citizen Savings Scheme account can be opened only by individuals. It can not be opened by Non-Resident Indians (NRI), Persons of Indian Origin (PIO) and Hindu Undivided Families (HUF).
Source of Funds
For people between 55 and 60 years of age, the amount invested in SCSS has to come from their retirement benefits.
For persons over the age of 60 years, there is no restriction on the source of funds invested.
The Senior Citizen’s Savings Scheme has a maturity of 5 years, which is extendable by 3 years.
The rate of interest offered on the investment is 9% per annum.
The interest is computed and paid out every quarter. That is, the interest is paid out every three months.
Income Tax Treatment
There is Section 80C income tax benefit on the investment made in SCSS, but there is no income tax benefit on the interest earned from it.
The investment made in the Senior Citizen Savings Scheme on or after 1st April, 2008 is deductible from your income under section 80C of the Income Tax Act. The interest earned on the deposit is fully taxable.
(To know more about the deductions under section 80C, and the avenues of investment u/s 80C, please read “Saving Income Tax – Understanding Section 80C Deductions“)
Tax Deducted At Source (TDS)
The income tax applicable is deducted at source. If your income is not taxable, you can provide form 15H or 15G so that no tax is deducted at source.
The tax is deducted at source only if the total interest in a year is over Rs. 5,000.
The minimum investment is Rs. 1,000, and the maximum allowed investment is Rs. 15 Lakhs. Any amount between Rs. 1,000 and Rs. 15 Lakhs can be invested in multiples of Rs. 1,000.
The account can be opened as a single account, or can be opened in joint names. The joint account holder can only be the spouse.
There is no age limit applicable for the joint account holder (spouse).
In case of the death of the primary account holder, the spouse can continue the account – this is subject to the condition that his / her total investment in SCSS should not exceed Rs. 15 Lakhs.
Premature / Early Withdrawal
The amount can be withdrawn before the maturity date, provided the deposit is at least 1 year old. But early withdrawal carries a 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 / Pledging
You can not obtain a loan against the SCSS account by pledging it.
Nomination facility is available for the Senior Citizen Savings Scheme. 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 canceled later.
Nomination can also be done in case of joint accounts. In such cases, 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.
Should you invest in Senior Citizen Savings Scheme (SCSS)?
Till very recently, the prevailing interest rates on bank fixed / term deposits were 5% – 6% per year. At that time, the Senior Citizen Savings Scheme was very popular with people, as it provided interest rates that were way above the average market rates.
But now (August 2008), with interest rates on FDs being as high as 10% (with an additional 0.5% for senior citizens), the interest offered on Senior Citizen Savings Scheme looks quite low.
The interest is paid out every 3 months. This means that SCSS can provide a steady, periodic income.
The SCSS is backed by the Government of India, and thus, carries a sovereign guarantee for principal and interest payments.
Therefore, it is among the safest investment avenues available in India.
Since the scheme is absolutely safe, and provides periodic payment of interest, retirees and senior citizens can invest a portion of their retirement corpus in the Senior Citizen Savings Scheme.
How to invest in the Senior Citizen Savings Scheme (SCSS)
A Senior Citizen Savings Scheme account can be opened at any designated post office throughout the country.
The scheme can also be opened at the designated branches of the following public sector banks:
- Allahabad Bank
- Bank of Baroda (BoB)
- Bank of India (BoI)
- Bank of Maharashtra (BoM)
- Canara Bank
- Central Bank of India (CBI)
- Corporation Bank
- Dena Bank
- Indian Bank
- Indian Overseas Bank (IOB)
- Punjab National Bank (PNB)
- State Bank of India (SBI)
- State Bank of Hyderabad
- State Bank of Indore
- State Bank of Bikaner and Jaipur (SBBJ)
- State Bank of Patiala
- State Bank of Saurashtra
- State Bank of Mysore
- State Bank of Travancore (SBT)
- Syndicate Bank
- UCO Bank
- Union Bank of India
- United Bank of India
- Vijaya Bank
A Senior Citizen Savings Scheme (SCSS) account can also be opened at ICICI Bank. ICICI Bank is the only private bank where an SCSS account can be opened.