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Senior Citizen Savings Scheme

Senior Citizen Savings Scheme
Senior Citizen Savings Scheme

Senior Citizen Savings Scheme” as my father searched this phrase on internet today morning, he found numerous posts on this subject. All the posts were more or less. In short Cut, Copy and Paste of each other. He told me that if i read one, it means i read all. Its quite unfortunate that non-finance person is left in a lurch. All articles on Senior Citizen Savings Scheme only highlighted the features of scheme. There is no guidance available whether to invest or not?. What are the pros and cons of the Senior Citizen Savings Scheme?. It inspired me to write today’s post on “Senior Citizen Savings Scheme” and i deviated from my editorial calendar. Besides Senior Citizen Savings Scheme being an effective investment tool for retirement planning, readers can also check my post Retirement Planning – Non Conventional Way.

As i mentioned, You will find 100 of posts on internet with scheme details. In this post we will focus only on whether to invest in Senior Citizen Savings Scheme or not. Before that i would like to highlight that there is no standard definition of Senior Citizen in India. It is quite unfortunate. According to Indian Railway, a Female is senior citizen if she attains age of 58 years. Whereas a Male is senior citizen if he attains age of 60 years. According to Air India website, a person is eligible for Senior Citizen Concession only if he or she attained the age of 63 years. For the purpose of Health Insurance, Senior Citizen Health Insurance policy is issued for people between 65 to 80 years which is good. Why i touched upon this point is because in Senior Citizen Savings Scheme there are exceptions allowed on age criterion. I will discuss this later.

According to “The Maintenance and Welfare of Parents and Senior Citizens Act 2007“, Senior Citizen means any person being a citizen of India, who has attained the age of sixty years or above. It is now standard definition for most of the Govt schemes.

Let’s check out various Pros and Cons of Senior Citizen Savings Scheme

Pros of Senior Citizen Savings Scheme

 1. Highest Interest Rate: Currently Interest Rate offered under the scheme is 9.2%. Interest rate is linked to G-Sec with spread of 100 basis point i.e. 1% over the G-Sec rate. Unlike PPF, Interest Rate of Senior Citizen Savings Scheme is fixed during the term of the scheme. In short, Senior Citizen Savings Scheme provide assured return and fluctuation in interest rate cycle will not change the quarterly interest payout. Interest paid is simple interest and fixed.

2. Frequency of Interest Payout: Keeping the requirements of senior citizens in mind, the interest payout is quarterly to maintain regular income flow. Interest is paid on 31st Mar, 30th Jun, 30th Sep and 31st Dec.

3. Risk Free Investment: It is advisable for Senior Citizens to invest in Risk Free options. Senior Citizen Savings Scheme fits into this criterion. Investment is totally risk free and backed by Govt of India.

4. Tax Exemption: Investment under Senior Citizen Savings Scheme is eligible for tax deduction u/s 80C. This scheme is beneficial for senior citizens whose income is taxable and they can save tax.

5. Maturity: Maturity of Senior Citizen Savings Scheme is just 5 years, keeping the requirement of senior citizens in mind. Scheme has an option of premature withdrawal of the deposits after 1 year. At the time of maturity it can be extended by 3 years.

6. Premature Withdrawal: Premature withdrawal is allowed only on completion of one year. If account is closed on completion of 1st year but before completion of 2nd year then there is a penalty of 1.5 % of deposit value. If account is closed on or after completion of two years, penalty is 1% of deposit value.

7. Reach: Senior Citizen Savings Scheme can be opened in any Post office, 24 nationalized banks and 1 private bank. Wide reach of this scheme makes it more suitable for senior citizens.

8. Comparison with Monthly Income Scheme of Post Office: Many people compare Senior Citizen Savings Scheme with Monthly Income Scheme. I agree that monthly interest payout is good option for senior citizens but interest rate of Monthly Income Scheme is less than Senior Citizen Savings Scheme. Secondly, for single account max limit in Monthly Income Scheme is 4.5 lakh and for joint account its 9 lakh. Whereas in Senior Citizen Savings Scheme, a senior citizen couple can open separate accounts with limit of 15 lakh each therefore total investment can be 30 lakh.

9. Transfer of Interest to RD account: If you open Senior Citizen Savings Scheme in post office then you can earn upto 10.5% interest if interest from Senior Citizen Savings Scheme is transferred to RD account. You can submit application to post office in this regard and interest of Senior Citizen Savings Scheme will be directly credited to RD account.

10. Account Portability: Account can be transferred from one bank to another therefore ease of operation and convenience is another plus.

11. Direct Credit of Interest in Savings Account

Cons of Senior Citizen Savings Scheme

1. Compounding of Interest: The interest paid is calculated every quarter as i mentioned earlier. In case, the depositor does not claim interest then additional interest will not be paid on the interest due to the depositor. It is not the case with other schemes like PPF therefore this scheme is more suitable if you need money on regular basis.

2. Interest is Taxable: Similar to Fixed deposits, interest received under Senior Citizen Savings Scheme is fully taxable in the hands of depositor. Interest will be clubbed with the income and tax is applicable as per income tax slab of the senior citizen. To summarize, this scheme is beneficial if annual income of senior citizen is below taxable limit or is in lowest income tax bracket.

3. Reversal of tax deduction u/s 80C in case of Premature Withdrawal: If the senior citizen decide to close the account and opt for premature withdrawal then all the tax benefits availed will be reversed.

4. Maximum investment of 15 lakh: Normally at the time of retirement, retirement corpus received is higher in value therefore limit of 15 lakh is too low.

5. Loan against Senior Citizen Savings Scheme: Unlike insurance policy, FD’s etc depositor cannot avail any loan against Senior Citizen Savings Scheme.

6. Post Maturity Interest: If at the time of maturity or after maturity the account is not closed and principal amount is not withdrawn then interest rate applicable will be Post office Savings Accounts interest rate i.e. 4%.

7. Differential Age Criterion: Definition of Senior Citizen is different for different class of depositors. For example

(a) General Public: 60 years

(b) Retired Defence Personnel: No Age Limit

(c) Retired under VRS or SVRS: 55 years. Account should be opened within 3 months of retirement.

8. Scheme is not available for NRI’s, PIO’s and HUF

9. TDS: If interest payout is more than Rs 10,000 in a year then TDS of 10% will be deducted. If the income is non-taxable then you need to submit form 15H or 15G

Word of Wisdom

Instead of lump-sum investment in Senior Citizen Savings Scheme, it is advisable to invest in trenches spread over 2-3 years to get maximum tax benefits depending on taxable income.

Copyright © Nitin Bhatia. All Rights Reserved.

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Gaurab Santra
Gaurab Santra
8 years ago

Can I deposit in my same Senior Citizen Saving Scheme a/C in bank over a period of time?

Can the rate of interest vary?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Gaurab Santra

Sorry it is not feasible.

manish debnath
manish debnath
7 years ago
Reply to  Nitin Bhatia

Hi , As the interest for the year crosses 10k, then TDS is applicable. Is it possible to split the amount and open multiple SCSS account. to avoid crossing the 10k mark and also avoid submitting the 15 H form.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  manish debnath

You can open multiple accounts and my avoid TDS but you cannot avoid tax on the interest component.

rahul
rahul
8 years ago

Can a senior citizen open account with his spouse for 15 lakh each totalling 30 lakh for example Mr.A first depositor with Mrs.B second depositor investment 15 lakh and Mrs. B first depositor with Mr. A second depositor 15 lakh total 30 lakh for that family. Is it allowed or total 15 lakh for family ? Kindly guide.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  rahul

Both the spouses can open separate account of 15 lac each.

Dinesh
Dinesh
8 years ago
Reply to  Nitin Bhatia

No, its wrong.. total limit is 15 Lakhs.. (Husband + Wife including)

VK Khurana
VK Khurana
8 years ago
Reply to  Nitin Bhatia

Please note and recheck the fact that the total deposits in each individual account of spouses can be Rs 15 lacs i.e. Rs 30 lacs in total.

ASHISH KHANDHAR
ASHISH KHANDHAR
8 years ago

SIR ,
CAN A SENIOR CITIZEN OPEN ACCOUNT WITH HIS SPOUSE HOW MANY ACCOUNT OR RESTRICTED TO 1 ACCOUNT AND ALSO WE CAN OPEN ACCOUNT MR. A WITH MR. B AND MR. A TO MR C (SON) IS POSSIBLE. PL. CLARIFY AS AP

Nitin Bhatia
Nitin Bhatia
8 years ago

This account is only for senior citizens. You can open with your spouse as 1st depositor and your spouse can also open with you as 1st depositor therefore you can open 2 accounts in family.

Nitin Bhatia
Nitin Bhatia
8 years ago

The max limit allowed under SCSS is 15 lac and in my opinion, you should close your 2nd SCSS account immediately. The govt will definitely come to know about this through PAN and interest already paid will be deducted from invested amount therefore you will not get any interest on 2nd Senior Citizen Savings Scheme Account.

JYOTIRMOY CHAKRABORTY
JYOTIRMOY CHAKRABORTY
8 years ago

sir, I m having some confusion regarding the point which says that if interest crosses 10k then tds will be applicable..Can you please tell me that if the interest earned on scss is within the tax slab i.e. 3 lakhs as per my knowledge then will a tds be applicable…if the interest crosses the 10k limit
THANKS AND REGARDS

Nitin Bhatia
Nitin Bhatia
8 years ago

As i mentioned in point no 9 of the post that TDS will be applicable if the interest payout crosses 10k. However if you are not falling under tax bracket then you can submit form 15H to post office and request them not to deduct TDS.

Bijal
Bijal
8 years ago

I want to know that I had my parents had made SCSS fd @ 9.3% in UBI and now from 1st april 16 rates are decreased. I would like to know the returns is fluctuated or interest is fixed for 5 years from date of FD?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Bijal

Interest rate will change. It will be 8.6% from 1st April, 2016.

Soumendu Sarkar
Soumendu Sarkar
8 years ago

I want to know that if I open SCSS (SBI) before 1st april 16, what interest rate I will get? Is it 9.3% for entire 5 years or is it new interest rate (8.6%) applicable.

I have MIS in post office. It matures today(24/3/16). What interest rate I will get if I renew my MIS in post office.

Nitin Bhatia
Nitin Bhatia
8 years ago

The applicable interest is credited on quarterly basis therefore with the change in interest rate from 1st April, 2016 the interest rate of all the Senior Citizens Savings Scheme accounts will change to 8.6%. A 5 year monthly income account will fetch 7.8% from 1st April, 2016.

harpreet
harpreet
8 years ago

i want To know that the maturity amount of SCSS Izs taxable or tax free ,yes i know that the interest is taxable bit here i want to know about principal amount for which i take 80c exemption

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  harpreet

There is no tax on principal amount at the time of maturity.

B.Venkatadri
B.Venkatadri
8 years ago

I have invested in Senior Citizen Savings Scheme on March 6, 2016, for a period of 5 years, at the then applicable interest rate of 9.3% p.a. Now, from April 1, 2016, the interest rate is reduced from 9.3% to 8.6%. So, my question is whether my deposit, which was made prior to this reduction in interest rate, would continue to enjoy the higher 9.3% for the entire term of 5 years!

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  B.Venkatadri

There will not be any change in the interest rate of existing account holders. The changes will be effective for accounts opened on or after 1st April, 2016.

Jb Lad
Jb Lad
8 years ago

Sir, my father is 67 Y and has no income or no any kind of saving, So i m thinking to deposit 15 lac on his name for his regular income, so do we need to have 15H or file to be returned on his name to reclaim the TDC. Thank you

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Jb Lad

You can gift the money to your father and then he can open the account under senior citizen savings scheme. If form 15H is submitted then TDS will not be deducted provided his total income will be less than taxable limit.

pritesh
pritesh
8 years ago

Dear Sir,

I had 2 queries:

1.I did investment in SCSS scheme on 28 March-16, shall I get quarterly interest paid on 31-March-2016 for 3 days or it will give me on next quarter 30-June including for 3 days.

2.I did investment through Punjab national bank but they did not provide any certificate showing I invested in SCSS, please suggest what kind of proof shall I ask bank so I can claim I had invested in SCSS

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  pritesh

1. Interest is paid on 31st Mar, 30th Jun, 30th Sep and 31st Dec. Therefore you should have received interest on 31st Mar. You have to present the passbook to collect quarterly interest.
2. A passbook is issued at the time of account opening. You can demand the same from bank.

Chandra Mukhopadhyay
Chandra Mukhopadhyay
8 years ago

Dear Sir,
thank you for the information and contributing effectively to the discussion.
I have two queries:
1. According to the current interest rate (after April’ 2016) which MIS is the best for senior citizens and how to avail it?
2. How to avail the tax benefit for the interest paid?
Looking forward,
Regards.

Chandra

Nitin Bhatia
Nitin Bhatia
8 years ago

1. There is NO separate MIS for senior citizens. Among all savings schemes, Senior Citizen Savings Scheme offer best interest rates therefore still it is the best bet for senior citizens.The interest will be paid on quarterly basis.
2. Interest is taxable under this scheme

Chandra Mukhopadhyay
Chandra Mukhopadhyay
8 years ago
Reply to  Nitin Bhatia

Thank you so much Sir.
Regards,

Chandra

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