Senior Citizen Savings Scheme (SCSS) is a government-sponsored savings instrument for individuals above the age of 60 years. The Government of India introduced this scheme in 2004 intending to provide senior citizens with a steady and secure source of income for their post-retirement phase.
It is one of the most lucrative savings schemes in India and offers comparatively substantial returns to its subscribers. The SCSS interest rate for April to June 2020 will be provided at 7.4%.
Furthermore, it is a government scheme, and hence, the risk of the capital loss is negligible. Individuals can apply for SCSS through post offices as well as public & private banks.
Features of the Senior Citizen Savings Scheme
The characteristics of SCSS are discussed below –
- Quarterly revision of interest rates: The interest rate offered under the Senior Citizen Savings Scheme is revised every quarter, and its derivation depends on several factors such as the prevalent rates in the market, inflation level, etc. Due to stagnant economic conditions or no significant change in it, rates might remain the same after revision.
- Fixed income: The interest rate declared during the time of investment remains fixed throughout the maturity tenure and is not affected by alterations in a later quarter.
For instance, Mr. Sunil deposited Rs. 2 Lakh in SCSS on 11th January 2018. The interest rate offered under the scheme for the 4th quarter of Financial Year 2017 – 18 was declared at 8.3%. Hence, his deposit would continue accruing interest at the rate of 8.3% throughout the maturity period even though it was revised and altered to 8.7% in the 3rd quarter of FY 2018 – 19.
- Minimum and maximum deposit: Eligible individuals require making a minimum deposit of Rs. 1,000 to open an account under the Senior Citizen Scheme. At the same time, the deposit quantum is capped at Rs. 15 Lakh or the amount received as a retirement benefit, whichever is lower.
For example, if Mr. Raman receives Rs 10 Lakh as a retirement benefit, he can invest up to that amount in the scheme.
This clause applies irrespective of whether the account is held individually or jointly. However, one can only open a joint account with his/her spouse.
Also, if an individual holds multiple accounts under this scheme, the total amount deposited in all such accounts shall not exceed the maximum limit.
- Maturity tenure: The maturity period for the SCSS scheme is 5 years. It can be extended for another 3 years, effectively bringing up the period to 8 years. If an individual is willing to extend such period by 3 years, he/she shall submit Form B after duly filling it. An extension is allowed only once. Upon extension, however, interest rates applicable at that quarter would apply.
For instance, Ms. Raman has deposited Rs. 7 Lakh under SCSS in April 2012, when the interest rate offered was 9.3%. However, when she extended this scheme in April 2017, the interest rate she was eligible to earn stood at 8.4%.
- Premature withdrawals and account closure: An individual can withdraw prematurely from their account under Sr. Citizen Savings Scheme one year after account opening.
If an individual closes their account before the completion of 2 years, 1.5% of the deposited amount will be deducted as penalty. If account closure takes place after completion of 2 years, 1% of the deposited amount is levied as a penalty. In the case of extended accounts, an individual can close their account after the first year without incurring any penalty.
For instance, if Mr. Shah deposits Rs. 5 Lakh in Senior Citizen Savings Scheme on 1st March 2017 and closes it on 6th February 2019, he will have to bear a penalty of Rs. 7500.
However, if the investor is deceased before the maturity of their account, no penalty will be charged.
- Quarterly disbursal: Individuals who open an account under the Senior Citizen Savings Scheme are eligible to receive quarterly disbursals against their deposited amount. Interest payment will be credited to an individual’s account on the first date of April, July, October, and January.
For example, if Mr. Harsh deposits Rs. 12 Lakh in SCSS in the 4th quarter of FY 2019 – 20, he will earn:
Rs. [(1500000 * 8.6% * 5)/20] or Rs. (645000/20) or Rs. 32,250
Hence, Mr. Harsh is eligible to earn approximately Rs. 32,250 as interest spanning across 20 quarters.
- Mode of deposit: An individual can choose to deposit their money in cash if the amount is below Rs. 1 Lakh, but has to pay in cheque if it exceeds Rs. 1 Lakh.
- Nomination facility: Individuals can register a nominee when they are opening their accounts under the Senior Citizen Savings Scheme or at a later date. In the event of an account holder’s death, before the account matures, the nominee will be eligible to receive the due amount.
- Security of capital: SCSS is a government-endorsed scheme, and hence, capital invested in it enjoys superlative security and guarantee.
- Substantial returns: SCSS has been historically known to provide its subscribers interest at rates that are at par with what is offered by other saving schemes such as fixed deposit, recurring deposit, etc.
Calculation of Interest under the Senior Citizen Savings Scheme
Interest is compounded quarterly and disbursed at every quarter on the first date of April, July, October, and January. The primary components used for its calculation are –
- The principal or deposit amount
- Interest rate
- Maturity period
The maturity period is fixed, while the other two components are variable. The interest rate under which an individual invested is considered for interest calculation. A demonstration of interest calculation and the maturity amount is provided below:
Mr. Amit deposits Rs. 10 Lakh under SCSS on 1st April 2017. In that respective quarter of the Financial Year 2017 – 18, the interest rate offered was 8.4%. Hence, the total interest he is eligible to earn at maturity is Rs. (1000000 * 8.4% * 5) or Rs. 4.2 Lakh.
As he will receive this interest at every quarter, his quarterly income from the Senior Citizen Savings Scheme would be total interest divided by the number of quarters in 5 years, i.e. 20, which is Rs. (420000/20) or Rs. 21,000.
The maturity amount, therefore, is (Principal amount + interest), which in this case, Rs. (1000000 + 420000) or Rs. 14.2 Lakh.
Historical Interest Rates Provided under SCSS
The Senior Citizen Savings Scheme has been historically known to provide high-interest rates to the account holders. The following table shows the interest rates that have been offered under SCSS
|Timeline||Rate of interest|
|1st Quarter of Financial year 2020 – 21 (April to June)||7.40%|
|4th Quarter of Financial Year 2019 – 20 (January to March)||8.60%|
|3rd Quarter of Financial Year 2019 – 20 (October to December)||8.60%|
|2nd Quarter of Financial Year 2019 – 20 (July to September)||8.60%|
|1st Quarter of Financial Year 2019 – 20 (April to June)||8.70%|
|4th Quarter of Financial Year 2018 – 19 (January to March)||8.70%|
|3rd Quarter of Financial Year 2018 – 19 (October to December)||8.70%|
|2nd Quarter of Financial Year 2018 – 19 (July to September)||8.30%|
|1st Quarter of Financial Year 2018 – 19 (April to June)||8.30%|
|4th Quarter of Financial Year 2017 – 18 (January to March)||8.30%|
|3rd Quarter of Financial Year 2017 – 18 (October to December)||8.30%|
|2nd Quarter of Financial Year 2017 – 18 (July – September)||8.30%|
|1st Quarter of Financial Year 2017 – 18 (April – June)||8.40%|
|Financial Year 2016 – 17||8.50%|
|Financial Year 2015 – 16||9.30%|
|Financial Year 2014 – 15||9.20%|
|Financial Year 2013 – 14||9.20%|
|Financial Year 2012 – 13||9.30%|
Who is Eligible to Open an Account under SCSS?
The category of individuals who are eligible to open an account under Senior Citizen Savings Account are mentioned below –
- Individuals of and above the age of 60 years.
- Individuals who are of 55 years of age but have retired early under a superannuation or Voluntary Retirement Scheme (VRS) rules.
- Retired defense personnel provided they have satisfied other terms and conditions.
Non-resident Indians or NRIs, Person of Indian Origin or PIOs, and any member of a HUF or Hindu Undivided Family do not qualify for opening an account for the scheme.
How to Open an Account under the Senior Citizen Savings Scheme?
An SCSS account can be opened with a post office or any of the private or public banks in India. The procedure for both is similar, and is mentioned below –
- Visit your nearest bank branch or Post office branch
- Duly fill up the Form A
- Submit the original and photocopies of all the necessary documents, broadly address and identity proof
- Produce age proof
Documents Required to Apply under SCSS?
An individual needs to produce the following documents to open an account under SCSS –
- Aadhaar Card
- Voter ID card
- PAN card
- Telephone bill
- Electricity bill
- Birth certificate/senior citizen card
- 2 passport-sized photographs
These documents need to be self-attested.
Tax Implications of Senior Citizen Savings Scheme
SCSS is one of the most beneficial investment options for senior citizens, given its security of capital, high returns, and also the tax benefit it attracts.
The principal amount deposited in an SCSS account is eligible for tax deductions under Section 80C of the Income Tax Act, 1961, up to the limit of Rs. 1.5 Lakh. However, this exemption is applicable only under the existing tax regime. It is not allowed if an individual chooses to file tax returns under the new system introduced in Union Budget 2020.
The interest received is, however, subject to taxation as per the applicable slab of the concerned taxpayer.
For instance, if Ms. Shah earns Rs. 72,000 annually as interest from SCSS and her total income in a year amounts to Rs. 4 Lakh, then the interest will be taxed at a 5% rate; her tax outgo on account of SCSS interest income, thereby, would be Rs. (72000 * 4%) or Rs. 2880.
Besides, if an individual’s interest income in a year exceeds Rs. 50,000, then it is subject to Tax Deducted at Source (TDS).
Senior Citizen Saving Scheme 2020 is an ideal investment option for those retirees who do not have any substantial means of regular income and have no short-term financial objectives. Additionally, risk-averse individuals not willing to put at stake their capital to invest in equity shares for higher returns might also consider SCSS.
- Will penalty charges be applicable for partial withdrawals?
If individuals make partial withdrawals from their SCSS account after one year of account opening, then penalty charges will not apply.
- Is the joint account facility available under this scheme?
Yes, the joint account facility is available only if an individual opens an account with his/her spouse.
- What is the mode of deposit if the deposit amount is Rs. 15 Lakh?
If the deposit amount is higher than Rs. 10 Lakh, then the deposit shall be made through cheque.