All retired senior citizens are finding it difficult to meet both their ends due to double whammy of constant inflation accompanied with reducing interest rates all around. The interest rates offered by banks on fixed deposits have come down to around six per cent. Though the private banks and corporate offer higher rates they can’t risk their limited resources there. In such environment, the government-guaranteed Senior Citizen Savings Scheme (SCSS) offers a better alternative. Let us discuss important features of SCSS.
Who can deposit money in SCSS?
Only an individual resident under FEMA (Foreign Exchange Management Ac) over 60 years can open account under SCSS. Account under this scheme can either be single or a joint account with your spouse only. As eligibility under this scheme is evaluated with reference to only the first holder, spouse even below 60 can be made a second holder. Your spouse can also open her/his account under SCSS as first holder if the conditions are satisfied.
Though Non-residents are not allowed to open SCSS account, but they can continue the account after they become non-resident. However, they are not allowed to renew it beyond initial tenure of five years. You can open SCSS account with any post office or designated branches of the authorized banks. An HUF can’t open account under SCSS.
For those who have taken voluntary retirement or have retired on superannuation can open this account even before completion of 60 years of age, but not before completing 55 years. In such cases the account has to be opened within one month from the date of receipt of the retirement benefits. In case of retired personnel of defence services, the same can be opened even after 50 years of age. The deposits made by those below 60 years shall be limited to retirement benefits, but maximum upto Rs15 lakhs.
Nomination and closure of account on death of the account holder
You are allowed to make nominations in favour of one or more persons. The nomination can be made initially or can be made, cancelled or modified anytime during the life time of account holder.
Ceiling on deposit of money under SCSS
You can open one or more accounts under SCSS, but are allowed to have deposits of maximum Rs15 lakhs in all the account put together at any given point of time. So, one can deposit Rs15 lakhs at one go or stagger over a period of time. The ceiling of Rs15 lakh is computed with reference to the first holder only.
Tenure and premature withdrawal
The SCSS has an initial tenure of five years, which can be extended only once for a period of three years. During the currency of the account, you are allowed to prematurely withdraw the money, but not before completion of one year though with some penalty. In case, the account is closed before second year a penalty of 1.5 per cent of the deposit amount is recovered. For the accounts closed after two years the applicable penalty is one per cent.
As you can’t withdraw any money deposited under this scheme during first year, please assess your funds requirement for one year properly before committing your funds to this scheme.
The rate of interest
The interest on deposits under this scheme is announced by the government for each quarter in advance. The rate applicable for the entire tenure is the rate prevalent at the time of making the deposits and will not be subject to change during the first five years. For extension, the rate applicable will be that prevailing then. The interest rate notified for the quarter beginning July 1, 2020, is 7.4 per cent.
The interest under SCSS is payable quarterly. There is no cumulative option under SCSS. First interest is paid from the date of making the deposit till end of the quarter and subsequently for each quarter.
Tax provisions applicable for deposits and interest
The deposits made under SCSS are eligible for deduction under Section 80C upto Rs1.50 lakhs each year along with other eligible items. This provision is significant when other avenues for claiming tax deductions under Section 80C like life insurance premium, payment towards pension plan, contribution to EPF account, ULIP, etc., are no longer workable for senior citizens. So, instead of putting entire amount of Rs15 lakh in a single year, you can spread the same over the years to maximize the benefits under Section 80C.
The interest received under SCSS is fully taxable. The bank will deduct tax at 10 per cent, if the amount of interest exceeds Rs50,000 in a year for senior citizen account holders. For others, the threshold limit for TDS is Rs40,000 per year.
In case, the interest for the whole year exceeds the threshold of TDS, you can submit Form-15H, if you are a senior citizen or 15G in other cases for receipt of interest without deduction of tax at source if you are eligible to submit such forms.
If you are a senior citizen and have made deposits under this scheme, you are entitled to claim a deduction upto Rs50,000 for interest received under this scheme along with other interest earned by you from banks and post offices under Section 80 TTB.
Who can claim the money on death of the account holder?
In the eventuality of death of a single holder, the balance outstanding under the scheme with interest becomes payable to the nominee/s in case nomination is made. In case, nomination is not made the legal hairs can claim it after following a tedious procedure. So, it is advisable to have nomination made at the time of making the deposits.
In case of joint accounts, the spouse gets an option to continue with the scheme. In case the spouse does not want to continue, the money can be withdrawn. In case the spouse already has deposits under this scheme, the aggregate of deposits under this scheme is restricted to fifteen lakhs. In case, the aggregate exceeds the threshold, the spouse has to withdraw the excess deposit.
Since the deposits under this scheme earn you higher returns than those generally available under other comparable safe investment avenues, it should be the first choice of senior citizens who want risk free returns on their investments.
The writer is a tax and investment expert and can be reached at email@example.com and on his twitter handle @jainbalwant