What is Senior Citizen Savings Scheme?

One of the biggest requirements for a senior citizen is a continuous inflow of funds to meet their day to day expenses. For providing income certainty to senior citizens along with guaranteed returns and capital protection, the Indian Government launched a Senior Citizens Savings Scheme or SCSS.

The Senior Citizens Savings Scheme is a fixed deposit scheme which pays out a monthly interest to the senior citizen. Currently, among all small savings schemes, the SCSS provides the highest rate of interest. At present, this rate of interest is 8.7 per cent per annum.

How does Senior Citizens Savings Scheme work?

The SCSS works like a fixed deposit that provides monthly interest income to the deposit holder. This account can be opened for a period of 5 years at a time and renewed for a further period of 3 years by giving an application.

The minimum investment in this scheme is Rs. 1,000 and the maximum amount is Rs. 15 lakh. Deposits over Rs. 1,00,000 have to compulsorily be made in cheque form. This is a single deposit account. This means one deposit has to be made following which the deposit will be locked in for 5 years.

An individual can either open a single account with a nomination or joint account with a spouse or child. Non-residents and HUF cannot open this type of account. All the joint account holders can operate the account. This account can be opened in either a bank or a post office. If you have opened a Senior Citizens Savings Scheme account in a bank and want to transfer it to a post office and vice versa, it is possible. However, not all banks have SCSS account facility.

This account provides some form of liquidity because it allows premature withdrawal. However, like a regular fixed deposit, there is a penalty on withdrawals. If you withdraw SCSS balance after 1 year and before 2 years, you need to pay a penalty of 1.5%. This penalty reduces to 1% for premature withdrawals after 2 years.

Eligibility for SCSS:

The eligibility for this scheme is as follows:

  • An individual who has crossed 60 years of age
  • Individuals between 55 years and 60 years who have retired on superannuation
  • Defence personnel of any age are eligible for the scheme
  • People who retired before the SCSS scheme was put in place

Tax benefits of Senior Citizen Savings Scheme:

The tax implications of an investment in SCSS can be categorized into three parts.

  1. Deduction under Section 80C:

Investment made in the SCSS gets a tax deduction under Section 80C of the Income Tax Act. This deduction is available for investments up to Rs. 1,50,000.

  1. TDS on Interest Income:

However, there is no TDS benefit on the interest income earned under this Senior Citizen Saving Scheme. If the total interest income exceeds Rs. 50,000 then only tax will be deducted at source.

  1. Deduction on overall interest income:

Senior citizens can claim tax deduction on this interest income along with other interest income under Section 80TTB of the Income Tax Act. This deduction is available up to Rs. 50,000.

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