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October 4, 2020

Know all about Senior Citizen Saving Scheme

by CA Shivam Jaiswal in Income Tax

Know all about Senior Citizen Saving Scheme

In India majority of older persons face financial hardship in old age as most of them are not in a position to earn their livelihood. Their savings, if any, are not enough to meet their day to day, particularly the medical expenses. Older persons with good net-worth value are in search of good short-term financial planning to earn a good income from their finance. The Income Tax law provides various benefits to senior citizens in India with the view to mitigate their issues.

The Government has also provided with various savings schemes to boost the income of the senior citizens. One such scheme is the Senior Citizen Savings Scheme (SCSS).

Senior Citizen Savings Scheme (SCSS) is a government-sponsored savings scheme for senior citizens, which was launched in 2004. The primary objective of the scheme is to enable senior citizens to ensure a regular flow of income. As this scheme is solely a government-run scheme, so the interest rate and other conditions have been set keeping in mind the financial needs of retirees. Let us first understand who is considered as a senior citizen in India before we move forward.

Who is considered as a Senior Citizen in India?

According to the law, a senior citizen is an individual resident between the age group of 60 to 80 years, as on the last day of the previous financial year.

Who is considered as a Super Senior Citizen in India?

A super senior citizen is an individual resident who is above 80 years, as on the last day of the previous financial year.

Who is eligible to invest in the Senior Citizen Savings Scheme?

  • An individual must be a citizen of India. Non-residential Indians (NRIs) or a person of Indian origin (PIOs) are not eligible to avail this feature.
  • Hindu Undivided Family (HUFs) do not qualify for this scheme.
  • Any resident of India aged 60 years or above is eligible for this scheme.
  • However, there are few exceptions to the age bar:
  • Retirees in the age group of 55-60 years who have opted for Voluntary Retirement Scheme (VRS) or Superannuation are eligible to avail the scheme if they apply for the same within one month of gaining their retirement perks and amount should not exceed the amount of retirement benefits.
  • Retired defence personnel can avail this scheme irrespective of their age, provided they fulfil all other conditions.

What is the minimum amount that can be deposited under this Scheme?

This scheme can be availed with a minimum lump sum deposit amount of Rs. 1000.

What is the maximum amount that can be deposited under this Scheme?

SCSS allows only one deposit in the account in multiple of Rs 1000 maximum up to Rs 15 lakh.

Where can the account under this Scheme be opened?

  • A SCSS Account can be opened in any post office or a public or private sector bank. The terms of the account remain same. Account can be transferred from one post office to another.
  • The Application form should be attached with KYC documents, age proof, ID proof, Address proof and cheque for deposit amount.
  • The SCSS application form requires you to provide some key information at the time of opening a Senior Citizen’s Savings Scheme account such as:
  • Applicant name and PAN
  • Name of the primary applicant’s father/mother/husband/wife
  • In the case of joint SCSS account with spouse, you have to mention the name, age, and address of your spouse
  • Cheque/demand draft amount and number (if applicable)
  • Nominee name, age, and address (If you wish to have more than one nominee, mention detail of individual share of each nominee)
  • Account can be opened by cash for the amount below Rs 1 lakh and for Rs 1 lakh and above by cheque only.
  • In case of cheque, the date of realization of cheque in Government account shall be date of opening of account.

Where can one obtain the SCSS Application form?

  • Senior Citizen’s Application Form is available via the offline route at India Post Offices as well as via the online route.
  • A number of participating public and private sector banks also have the option of SCSS Application form download from their official websites.
  • Alternatively, one may choose to obtain the paper form at designated branches of participating banks in India.

What is the maturity period under this Scheme?

  • The maturity period of SCSS is five years.
  • However, the tenure can be extended by three more years after the maturity period of five years is over.
  • This extension option is currently available just once and the extension request has to be made within 1 year of maturity of the SCSS account. 

What is the interest rate under this Scheme?

  • As of April 2020, the interest rate available on the SCSS account is 7.4% per annum for the first quarter (April to June) of the financial year 2020-2021.
  • This rate of interest is reviewed quarterly by the Ministry of Finance and subject to periodic change.
  • Interest on SCSS account deposits is calculated and credited quarterly.
  • If the interest payable every quarter is not claimed by an account holder, such interest shall not earn additional interest.

Can the amount from the account be withdrawn before its maturity?

Yes, Premature withdrawal is allowed as follows:

  • If the account is closed before 1 year, no interest will be payable. If interest is already paid then the same will be recovered
  • If the account is closed after one year from the date of account opening, an amount equal to 1.5% of the deposit will be deducted as penalty
  • If the account is closed after 2 years from the date of account opening, then 1% of the deposit will be deducted as penalty

Can an individual open more than one account?

An individual may operate more than one account in individual capacity or jointly with spouse (husband/wife). Any number of accounts can be opened in any post office subject to maximum investment limit by adding balance in all accounts.

Is nomination facility available under this Scheme?

  • The depositor may nominate a person or more than one person. Nomination made by the depositor can be cancelled or changed at any time.
  • In the event of death of the primary account holder before actual maturity of the account, the account will be closed and all the maturity proceeds will be transferred to the legal heir/nominee.
  • For deceased claims, the nominee or the legal heir will have to fill out a written application in prescribed format along with Death Certificate to facilitate the closure of the account.

What are the tax benefits available under the Scheme?

SCSS comes with a maximum tax benefit of Rs 1.5 lakh under section 80C of the Income-tax Act. However, interest earned on SCSS is fully taxable. In case the interest amount earned is more than Rs. 50,000 for a fiscal, Tax Deducted at Source (TDS) is applicable to the interest earned. This limit for TDS deduction on SCSS investments is applicable from AY 2020-21 onwards.

Being a government-backed scheme, SCSS comes with all the protection associated with all government schemes. With benefits such as flexible investment amount, easy availability, tax deduction and reasonable return, SCSS encourages senior citizens to have this saving scheme as a medium or a long-term investment product in their financial kitty.

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