The Senior Citizens Savings Scheme (SCSS
) offers regular income, highest safety and tax saving
, making it a popular product for those over 60 years of age.
Post retirement, people are looking for investment avenues to park their retirement corpus in. They are hesitant to put their hard-earned money in equities, which carry capital loss risk, or products which come with a long lock-in period and don’t offer any income till maturity.
Retirees are looking for products that are less risky and can also minimise their tax outgo. This is where SCSS comes in. The scheme offers capital protection, along with quarterly interest payment as a source of income. SCSS is backed by the government and, therefore, offers a sovereign guarantee. Interest income from SCSS can also help retirees bridge the gap between their pension and the last salary drawn.
Who can invest in SCSS?
As the name suggests, any individual aged 60 and above can invest in it. Early retirees between 55 and 60 years, who either opted for the voluntary retirement scheme (VRS) or superannuation, can also invest in the scheme, provided the investment is done within a month of receiving retirement benefits.
Earlier, retired defence personnel were allowed to invest in this scheme irrespective of their age, subject to other conditions. However, on October 3, 2017 the government issued a notification stating that the investment age has been fixed at 50 years.
However, non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not allowed to invest SCSS.
How to invest?
A senior citizen can invest in this scheme by opening either an individual or a joint (along with the spouse) account with a post office or a scheduled commercial bank.
How much can one invest?
An individual, singly or jointly, can open an SCSS account by investing up to Rs 15 lakh (in multiples of Rs 1,000) only. The amount invested in the scheme also cannot exceed the money one receives on retirement. Therefore, one can invest either Rs 15 lakh or the amount received as a retirement benefit, whichever is lower.
The account can be opened by cash for amounts below Rs 1 lakh and by cheque only for Rs 1 lakh and above, as per the senior citizen scheme rules on the Income Tax website. The investment date in the scheme is taken as the date on which the cheque is realised in the government’s account.
Number of accounts
There is no limit on the number of accounts that can be opened, but the total amount in all the accounts must not breach the maximum investment limit.
Following is the list of the documents required for investing in the scheme:
(a) Duly filled application form, available at the post office or bank
(b) Know Your Customer (KYC) form
(c) Photographs of the applicant/s
(d) Permanent Account Number (PAN)
(e) Address proof
(f) Age proof
(g) In the case of retirees, a certificate from the employer, stating the retirement was on superannuation or otherwise, retirement benefits, employment held (designation) and the period of employment.
(h) Proof of date of disbursal of the retirement benefits
The account opening application form requires details such as PAN, address proof, age and number of accounts already opened under the scheme and the amount deposited in each account.
Pan Number is mandatory for opening an SCSS account. If the investor doesn’t have PAN at the time of investment, he must apply for the same and mention the application number on the application form.
Click here for the account opening form.
Proof of investment
The depositor is given a passbook once the account is opened, which includes the date of opening, the account number, the depositor’s name, photograph, address, the amount deposited, dates and amount of the quarterly interest payable, maturity date and amount, nomination details.
Interest rate offered
Effective 1 October 2018, the scheme offers an interest rate of 8.7 per cent per annum. The interest rates offered on post office saving schemes are reviewed every quarter by the Ministry of Finance. The governement is yet to announce the latest interest rate for January-March, 2019 quarter.
However, the interest payable on an investment is locked on the date of the investment and does not change even if the rate on the scheme as a whole is revised later.
Only new investment under SCSS is affected by the change in interest rate. However, if an SCSS account is extended post maturity the interest rate that the extended account will earn will be as per the rate prevailing for that scheme on the date of extension. The scheme does not have the option of ‘cumulative interest’, unlike a bank fixed deposit (FD) or NSC.
The interest is calculated for each quarter up to the last day of every quarter i.e., on March 31, June 30, September 30 and December 31. The interest payable is credited to the account holder’s account on April 1, July 1, October 1 and January 1.
The account holder, while investing in SCSS, must remember that if the investment is done via a post office then he/she must have an operating post office savings account to receive the credit of the quarterly interest. The same goes for investment done through a bank.
As of now, the credit of the interest on investment done through a post office is not possible in the account holder’s bank savings account.
The tenure of the scheme is five years, which can be further extended for three more years. Premature withdrawals are allowed, but only after one year and with premature withdrawal charges.
If one prematurely withdraws after a year, but before two years from the start date, the charges are 1.5 per cent of the deposit, and after 2 years it is 1 per cent.
No charges are levied in case of premature closure of account due to the depositor’s death.
If the depositor wishes to close the account after the completion of five years and receive the maturity amount then he needs to submit the duly filled ‘Closure Form’, along with the passbook.
To apply for the extension of the scheme for another three years after it has completed its mandated five-year tenure, the investor must submit the duly filled form of the extension of the scheme.
Click here for the closure/extension form.
In case the depositor has not extended the scheme on maturity or closed the account after maturity then post maturity, the deposit will earn the post office savings account interest rate, applicable at that time.
Investment in SCSS qualifies for deduction under Section 80C of the Income-tax (I-T) Act. However, this tax benefit is under the overall current ceiling of Rs. 1.5 lakh per annum fixed for all investments under Section 80C.
Commenting on the tax benefits available under the scheme, Amarpal Chadha, Tax Partner and India Mobility leader, EY, says, “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 extension of an existing account after five years.”
Further, as far as taxation goes in case of premature withdrawals, Sonu Iyer, Tax Partner & National leader – People Advisory Services, EY India, adds that the person loses the 80C benefit if he withdraws from the scheme prematurely, but the benefit is not withdrawn on retrospective basis for the year of the deposit.
Instead, the principal amount withdrawn, along with the interest paid in the year of withdrawal is added to the individual’s gross total income in the year of the premature withdrawal.
It must be noted that the principal amount on premature withdrawal by the nominee or legal heirs is not taxable in their hands in the event of the death of the depositor. Any interest paid into the account of a depositor after the date of his demise, will be taxable in the hands of the nominee or legal heirs.
The interest received under the scheme is taxable in the hands of the depositors. However, senior citizens can claim deduction under section 80TTB for the maximum up to Rs 50,000 in a single financial year. There is a tax deducted at source (TDS) on the interest payment if the amount is more than Rs 10,000 per annum as per current tax laws.
Nomination facility is also available for account holders. A depositor can also appoint a minor as his nominee. He just needs to provide the guardian’s details, along with the minor’s date of birth.
If the nomination is not made at the time of the opening of the account, the depositor can do so during the scheme tenure by submitting the duly filled nomination form. In the case of joint holding, the nomination form should be signed by all the account holders.
There is no limit on the number of times an investor can change his nominee. This facility is available free of charge.
Click here to view the nomination form.
The depositor can also transfer his account to another post office or to a bank. He can avail this facility by submitting the duly filled transfer form to his current deposit office, i.e., the post office or bank. A nominal fee is charged to avail this facility.
Click here to view the transfer form.
While opening an SCSS account, the depositor must furnish all the required information. If the information furnished by him is false then the account will be closed immediately and the deposited amount will be refunded after the deduction of interest already paid (if any) to him/her.
(The forms, whose links have been embedded in the story above, were physically collected from G.P.O., Kashmere Gate, Delhi on February 16, 2017.)