Senior citizens do not have any active income and ability to earn post their retirement, they thus depend on the interest income and cannot take any risk with their money. Senior Citizen Saving Scheme (SCSS) is one of the avenue which gives better returns than other products and is perfectly safe. Let us discuss.
Any resident individual can open an account under this scheme with post office or designated banks, either singly or jointly with spouse. Your spouse can also open an account under this scheme provided he/ she fulfils the age criterion. Account under this scheme cannot be opened by or on behalf of an HUF.
You can appoint one or more nominees for deposits under this scheme. The nomination can be made at the time of opening the account itself or anytime thereafter which can be modified or cancelled any time and any number of times during currency of the account.
If you have retired on superannuation or have taken voluntary retirement, you can also invest under this scheme provided you have completed 55 years of age at the time of opening the account. The age limit does not apply for retired personnel of defence services. In either of the case, the account under SCSS has to be opened within one month from the receipt of retirement money with proof of disbursal. Only the money received as retirement benefits under the terms of such retirement can only be invested under this scheme.
One can deposit only upto Rs 15 lakh under this scheme either by opening a single account or a joint account. Since for determining the eligibility to open the account under this scheme the age of the first holder is only considered, the spouse can be added as joint holder even if he/se has not completed the required age. The deposits within the overall limit can be made either in one single account or in multiple accounts.
The initial tenure of the account opened under SCSS is five years but can be extended for once for another period of three years. Deposits made under SCSS can only be withdrawn after completion of one year and that too with a penalty. A penalty of 1.50% of the deposit amount is levied if you close the account after one year but before completion of two years. The amount of penalty comes down to 1% for accounts closed after two years. The deposits under extended account can be withdrawn any time after one year without any penalty. As deposits under SCSS cannot be withdrawn within one year, you should assess your liquidity requirement for next year before making deposits under SCSS.
Interest under this scheme, which is paid quarterly, is decided every quarter by the government in advance. Presently, the rate of interest for this scheme is 8.6 percent for the running quarter. The payment date for first interest is adjusted so as to make all the subsequent payments quarterly.
The interest under SCSS is fully taxable and the banks/post offices will deduct tax @ 10% under section 194A if the interest for the whole year is more than Rs 50,000 in a year in case you are over 60 years otherwise the limit for TDS is Rs. 10,000 p.a.. In case you are a senior citizen and do not have any tax liability, you can submit form 15H for getting interest without TDS and in case of non senior citizen other have to submit form 15G.
In case of death of the account holder the amount of deposit in a single account becomes payable to legal heirs and is paid immediately to the nominee if nomination has already been filed. In case of a joint account or where the spouse is only nominee, the deposit under the scheme gets transferred to the spouse provided the aggregate of the deposit being transferred along with the deposit held by the spouse in her/his name does not exceed the maximum ceiling of Rs. 15 lakhs. In case the aggregate of these deposits exceed this threshold, the excess amount has to be refunded to the joint holder immediately.
SCSS helps you earn good return without risking your capital. Quarterly payment of interest also ensures cash flow at regular intervals to meet day today expenses. The subscription to this scheme is eligible for deduction under Section 80C within the overall limit of Rs. 1.50 lakh. The benefit of deduction under Section 80 C is very helpful and comes handy for senior citizens as many other avenues for claiming tax deductions under Section 80C like life insurance premium, payment towards pension plan, contribution to PF/PPF, ULIP, school fee etc. no longer workable or remain attractive to senior citizens.
Since the aggregate amount of deposit which one can make under this scheme is 15 lakhs but the deduction available under Section 80C is restricted to Rs. 1.50 lakhs, you should stagger your deposits under this scheme over the years in such a way to maximise the tax benefits.
I am sure this discussion will help you in better organizing your savings.
The writer is a tax and investment expert and can be reached on [email protected] and @jainbalwant on twitter
(Republished with amendments)