Senior Citizen Savings Scheme (SCSS)

Senior Citizen Savings Scheme (SCSS)

Retirement comes with financial uncertainty, though there exist savings products that are safe and offer guaranteed income after retirement. The SCSS is one such deposit scheme that was introduced by the GoI in 2004. The main objective of the scheme is to provide an assured return to senior citizens. This sum is paid every quarter and creates a regular and guaranteed income flow for them.  

Capital and Inflation Protection

Since the scheme is backed by the Indian Government, the capital is SCSS is completely protected. However, the capital is not inflation-protected. That is to say that when inflation goes above the current interest rate, the deposit will earn no real return. However, when inflation is below the current interest rate, a positive real rate of return is guaranteed. 

Guarantee

Interest rates offered by SCSS are in alignment with the G-sec rates of similar maturity, with a 1 percent spread. Additionally, the government reviews the SCSS rates every quarter. However, once a subscriber has enrolled, the rated remain unchanged for the entire tenure. For the first quarter of the present financial year, the rates have been set at 7.4 percent compounded annually. Interest is paid out quarterly. 

Liquidity and exit option

SCSS is liquid though it does have a five-year lock-in period. One is allowed to make withdrawals, but these are subject to conditions and certain penalties. 

Premature closing of the account is also permitted, though with a penalty. 

Tax implications

Under section 80C of the Income Tax Act, the sum that is invested in the SCSS on or after April 1, 2007; is eligible for a tax deduction. The interest earned on the deposit is fully taxable, and tax is deducted at source if the total interest for a year exceeds INR 50,000. However, if the income is not taxable, the subscriber has to fill up Form 15H or Form 15G, so that no tax is deducted at source. 

Opening an account in the SCSS

An SCSS account can be opened in the head post office or general post office branches. Several branches of designated nationalized banks also offer the facility, and so does ICICI bank. 

The following documents are needed to open an SCSS account

- An account opening form, provided by the bank itself

- Two passport-sized photos

- Address and identity proof (PAN card, Aadhaar card, passport, etc.)

- Carry an original ID proof for verification at the time of account opening

Things to keep in mind

- ECS transfer of interest to a respective savings account can be done. 

- In case of early closure of the account, a penalty will be charged. 

- The deposit in the SCSS account cannot be pledged to obtain loans since it defeats the purpose of regular incomes. 

- Premature withdrawal of money/closure is allowed only after you complete one full year from the date of opening the account after a penalty is deducted for the same. 

- Depending on the completed tenure of your account, this penalty can vary from 1 to 1.5 percent. If the account is closed after the first year and before the end of the second year, 1.5 percent of the deposit is charged as penalty. If the account is closed on or after the second year, 1 percent of the deposit amount is deducted as penalty.  

Features at a glance:

  1. Eligibility: Resident Indian
  2. Eligible age: 60 years; 55 years for those who retired on superannuation or under VRS. Retired personnel of defense services, excluding employees in civilian defense, are eligible to invest irrespective of their age limit, given that they fulfill certain requirements. 
  3. Investment amount: Minimum INR 1000 and maximum INR 15 lakh (INR 30 lakh jointly with a spouse); all deposits are to be made in multiples of INR 1,000/-
  4. Interest: 7.4 per cent p.a. compounded annually, paid on the last working day of April, July, October, and January
  5. Tenure: Five years, with an option of extension by three more years
  6. Account holding categories: Individual, Jointly with a spouse, Multiple accounts allowed 
  7. Nomination Facility: Available