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All about Senior Citizens’ Savings Scheme 2019

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Illustration by Cedric Hohnstdt of a retired golfer.

Men and women accumulate wealth in their youth so that they can have financial security when they retire. Most of them retire as a senior citizen or become senior citizens within a couple of years after retirement. Majority of the working people get a decent lump sum amount at the time of retirement. Government incentives senior citizens to invest that amount in various investment schemes formulated from time to time.

Senior Citizens’ Savings Scheme (SCSS) is one of such popular investment products for those over 60 years of age. The Government of India has introduced various schemes for the benefit of senior citizens and retired persons, Senior Citizen Saving Schemes (SCSS) is one of such schemes that offer a regular stream of income with the highest safety and tax-saving benefits to senior citizens.

The SCSS is a government-backed savings instrument for senior citizens and retired persons. Investment in such schemes can be claimed as deduction under section 80C. The primary objective of the scheme is to provide financial support to the retirees in terms of ensuring a regular flow of interest income.

Government of India has withdrawn previous SCSS Rules with immediate effect (i.e. from 12 December 2019). Now, the government had notified the new scheme w.e.f. 12th December 2019.

Here, we have covered salient features of the SCSS effective from 12th December 2019.

  • Who is eligible for investing in the scheme?

The scheme notifies that the following category of persons can invest here;

  1. An individual who has attained the age of 60 years on the date of account opening,
  2. An individual who is in the age group of 55 to 59 years and has retired on superannuation or otherwise on the date of account opening,
  3. Retired personnel of Defense services (excluding Civilian Defense Employees) who has attained the age of 50 years.

Following additional conditions are required to be fulfilled by the persons mentioned under clause (b) and (c) above, for being eligible to open an account under the scheme;

  1. Account must be opened within a period of 1 month from the date of receipt of retirement benefits,
  2. The proof of the date of disbursal must be attached with the application form, and
  3. A certificate from the employer must be attached with the application form, indicating therein details of employment held, the period of employment, retirement and retirement benefits.
  4. Who is not eligible for investing in the scheme?

The successor or the legal heir of the deceased serving personnel are not eligible to invest the terminal benefits of such deceased personnel under the scheme.

  • How many accounts can an individual hold under the scheme?

An individual is allowed to hold more than one account under this scheme. However, the total amount of deposit in all the accounts held by a single individual shall not exceed the maximum deposit limit, i.e., Rs. 15,00,000 per annum.

  • Is there any option for opening a Joint Account under the scheme?

There is an option available to open a joint account under this scheme. An individual may open an account in his/her individual capacity, or jointly with the spouse. In case of a joint account, the age condition to be fulfilled will be considered of the primary account holder and no age-limit is there for the secondary account holder.

The amount of deposit in a joint account shall be attributable to the primary account holder only.

  • How much minimum and maximum amount is to be deposited?

The minimum amount that is required at the time of the initial deposit is Rs. 1,000 and the total amount to be deposited in an account shall not exceed Rs. 15,00,000 per annum.

The maximum amount that can be deposited by the individuals mentioned in the category of persons who can invest under clause (b) and clause (c) is Rs. 15,00,000 or retirement benefits*, whichever is lower.

The amount deposited over and above the eligible limit shall be refunded to the account holder immediately.

*Retirement Benefits: Any amount due to the account holder on account of retirement on superannuation or otherwise and includes the following;

  1. Provident Fund Dues
  2. Retirement or Superannuation Gratuity
  3. Commuted Value of Pension
  4. Cash Equivalent of Leave
  5. Savings element of Group Savings Linked Insurance Scheme payable by the employer on retirement
  6. Retirement-cum-Withdrawal benefit under the Employees’ Family Pension Scheme
  7. Ex-Gratia payments under a Voluntary or a Special Voluntary Retirement Scheme
  8. What is the tax benefit of investing in the scheme?

The investments made in the Senior Citizens’ Savings Scheme are eligible for deduction under Section 80C up to Rs. 1,50,000.

  • Is income earned on SCSS taxable?

The interest earned on SCSS shall be charged to tax as ‘Income from Other Sources’. However, the interest earned on the deposit made under this scheme is eligible for a deduction of up to Rs. 50,000 under Section 80TTB if the investor is a senior citizen.

If the interest amount exceeds Rs. 50,000, then the bank or post office shall deduct TDS therefrom and will pay the net amount to the account holder.

  • How much interest is earned under the scheme?

The rate of interest (ROI) on the amount deposited under the scheme is 8.6% per annum.

The amount deposited more than the maximum eligible amount (Rs. 15,00,000), shall earn the interest at the rates applicable to the Post Office Savings Account (4% per annum), from the date of deposit till the date of refund.

  • When the interest becomes payable to the account holder?

In the first instance, the interest on deposit shall be payable to the account holder on the first working day of April/ July/ October/ January for deposit date to 31st March/ 30th June/ 30th September/ 31st December. After that, interest shall be payable on the first working day of April/ July/ October/ January.

  • Is there any provision of Interest on Interest?

There is no provision of earning interest on interest amount. If the interest, which is payable every quarter, is not claimed by the account holder, such interest shall not earn any additional interest. If the interest is not claimed on the due date, it can be claimed later on. The account holder may authorise to credit the interest amount to his/her savings account.

  • What is the tenure of the account under the scheme?

The deposit under this scheme can be made for a period of 5 years.

  • Can tenure of the account under the scheme be extended?

The account holder may extend this tenure for a further period of 3 years by making an application within a period of 1 year from the date of maturity. The extension can be availed only once. The extended period of 3 years will be calculated starting from the date of maturity, irrespective of the date of application for extension.

In case, the account holder does not apply for the extension of tenure after maturity, the interest shall be payable, after the date of maturity, at the rates applicable to the Post Office Savings Account (4% per annum).

  • Is there any provision for pre-mature closure of account?

The account holder may close the account before maturity at any time by making an application but subject to the following conditions:

  1. If the account is closed within one year from the date of opening of the account, the interest paid on the deposit shall be recovered from the deposit amount and the balance deposit amount shall be refunded to the account holder,
  2. If the account is closed after the expiry of 1 year but before the expiry of 2 years, 1.5% of the deposit amount shall be deducted and the balance deposit amount shall be refunded to the account holder,
  3. If the account is closed after the expiry of 2 years but before the expiry of 5 years, 1% of the deposit amount shall be deducted and the balance deposit amount shall be refunded to the account holder.

In any of the above cases, the interest shall be paid up to the date preceding the date of such closure, after deduction of the amount specified above. Further, multiple withdrawals from an account are not permitted.

  • Is pre-mature closure of account possible in case of tenure extension?

Where the tenure of the account has been extended after maturity, the account holder may close the account at any time after the expiry of 1 year from the date of extension and that too without deduction of any amount.

  • What is tax treatment in case of premature closure of account?

If the account holder closes the account before the expiry of 5 years from the date of its deposit, the amount withdrawn shall be deemed as the income of the assessee for the previous year in which amount is withdrawn. Only that amount shall be taxable which has been claimed as deduction under section 80C at the time of investment. However, the amount received by the nominee or the legal heirs on the death of the assessee shall not be chargeable to tax.

  • What if, the depositor dies before maturity/extended maturity of the account?

In case the account holder dies before the maturity or extended maturity, his/her account will be closed and the deposit amount shall be refunded to the nominee or legal heir, along with interest which will be calculated till the date of death.

In this case, no pre-mature account closure charges shall be deducted. However, the interest on the deposit amount shall earn interest at the rate applicable on Post Office Savings Account (4% per annum) from the date of death of the account holder till the date of final closure of the account.

In case of a joint account, where the spouse is the sole nominee, he/she may continue the account on same terms and conditions, if he/she meets the eligibility criteria on the date of death of the account holder. However, the same does not hold good if both the spouses have separate accounts and either of the spouse dies. In this case, the account of the deceased cannot be continued by the other spouse and will have to be closed.

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