What is a Senior Citizen Savings Scheme?
The Senior Citizen Savings Scheme (SCSS) is a savings scheme backed by the Government of India with the intention to provide guaranteed retirement income for senior citizens.
The current interest rate is 8.7% per annum but these rates are revised by the Indian Government every quarter. The capital is completely protected, having said that, this scheme does not ensure inflation protection.
Premature closure or withdrawal are subjected to penalties that vary between 1-1.5%. You can start investing in SCSS with a minimum investment of Rs. 1000 and make sure to build a reliable retirement corpus.
Specially meant for senior citizens seeking guaranteed regular returns from savings.
Those not looking for regular income.
Highlights
- Risk: The scheme is risk-free.
- Returns: The scheme currently offers an interest rate of 8.7% p.a. and is lined with G-sec rates.
- Taxation: The invested amount receives tax deduction up to Rs.1.5 lakh as per Section 80(C).
- Lock-in Limitations: Has a lock-in period of 5 years and can be extended for another 3 years.
- Withdrawals: Withdrawal is permissible post one year of account opening and varies between 1-1.5% based on account tenurity.
- Capital Protection: It is a Government scheme so the capital is highly safe and reliable.
- Inflation Protection: When inflation is above interest, the account earns no real returns.
Investment Goal
It is an Indian Government initiative for the senior citizens with the objective to provide guaranteed returns every quarter, thereby building a regular and assured income flow.
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Overview
| Feature | Description |
| Eligibility | The account holder must be an Indian Resident. |
| Entry Age |
|
| Fee Structure (Account Opening Fee & Maintenance Charges) | The minimum amount required to open a SCSS is Rs. 1000. The upper limit is Rs. 30 lakh for a joint account and Rs. 15 for a sole account. (Deposits should be in multiples of Rs. 1000) |
| Investment | |
| Interest | The current interest rate is 8.7% p.a. The rates are revised quarterly. |
| Tenure | 5 years with an extension of another 3 years. |
| Exit Option | Premature closure is subjected to penalty. |
| Account Holding Categories |
|
| Nomination facility | This provision is available. |
Capital & Inflation Protection
Since this scheme is backed by the Indian Government, the capital is highly safe and secure.
There is no protection when the rate of inflation is more than the rate offered by the senior citizen savings scheme. Hence the account earns no real returns.
Guarantees
The interest rate currently is 8.7% per annum, however, the government revises the rates quarterly. Once the investor has made his deposit, the interest (in line with G-secs of similar maturity and a spread of 1%) won’t change during the tenure. SCSS has quarterly interest payouts.
Liquidity
Premature withdrawal or closure is allowed after one year of account opening but is subjected to penalty that varies between 1-1.5% based on account tenurity.
- 1.5% of the deposit is deducted as penalty if the account is closed after 1st year but before the 2nd year.
- 1% of the deposit is deducted as penalty if the account is closed on or after the 2nd year.
Tax Implications
- Under Section 80(C) of the Income Tax Act, the investment amount receives deductions up to Rs. 1.5 lakh per annum.
- The interest earned is fully taxable.
- If the income exceeds Rs. 10,000 in a financial year then it is subject to TDS (tax deducted at source).
Account Setup Information
How to open?
The account can be opened at any head or general post office and several branches of designated nationalized bank like Bank of India, Dena Bank and Canara bank to name a few. The only private sector bank to provide SCSS facility is ICICI bank. The following documents are required for the account opening process:
- Account opening form.
- Passport size photographs – two
- Aadhar card or acknowledgement of application in its absence.
- Address and Identity Proof such as: PAN, Aadhar Card, declaration of Form 60 or 61, Driver’s License, Voter’s ID or Ration Card. (Carry originals of ID proof during account opening for verification purpose.)
Online Access
Online access is possible by linking your online bank account with a bank offering SCSS.
Key Takeaways
- The scheme’s interest rates are aligned with G-secs of similar maturity and does not provide inflation cover.
- Transfer of interest to savings account is permissible through Electronic Clearance Service (ECS).
- You can port the account from one bank to another.
- The account receives tax deductions under Section 80(C) up to Rs.1.5 lakh.