All You Need to Know About Senior Citizens Savings Scheme

The Government of India has proposed to exempt senior citizens having only pension and interest incomes from filing income tax returns (ITRs). However, the newly added Section 194P of the Income Tax Act, 1961 requires banks to deduct taxes on senior citizens aged over 75 years earning pension and interest incomes from the institutions.

The Senior Citizens Savings Scheme (SCSS) is aimed at the senior citizens of the country. It provides a regular source of income with tax savings and secured returns. SCSS is an excellent option for those aged 60 years and above.

What is the Senior Citizens Savings Scheme?

SCSS is a preferred fixed-income product for people aged 60 years and above. It was launched in 2004 and aims to provide senior citizens in the country with a regular source of income for their financial independence. SCSS provides assured interest income that is payable quarterly.

Senior citizens can invest a lump sum either individually or jointly and receive an assured interest while availing of tax benefits. SCSS is backed by the government, and you can open an account with certified banks and post offices.

How does the Senior Citizens Savings Scheme work?

Now that the question, “what is the senior citizens savings scheme?” is answered, let us understand how it works.

• You need to open an account with a minimum of INR 1000 and a maximum of up to INR 15 lakhs in a single lump-sum payment.
• The deposit amount cannot exceed your retirement benefits, and it has to be deposited within one month of receiving these from your employer.
• Retirement benefits include any amount received, such as provident fund (PF), leave encashment, superannuation or retirement gratuity commuted value of pension, ex-gratia payments under voluntary or special voluntary retirement scheme (VRS), retirement-cum-withdrawal benefits under Employees’ Family Pension Scheme, or savings under a group savings-linked insurance scheme payable by your employer at the time of retirement.
• If the deposit exceeds retirement benefits, the excess amount is immediately refunded.
• Interest on the SCSS account is paid quarterly, which can be withdrawn through Electronic Clearing Service (ECS) or direct credit into the savings account.
• You can close the SCSS account at any time.
• After the maturity date, you may extend the account for an additional period of three years; the extension should be done within one year from the date of maturity.

How to open a Senior Citizens Savings Scheme account?

You can open an account with an authorized bank or post office. Here is how it can be done.

• Fill the account opening form
• Submit the form with know-your-customer (KYC) documents like identity, address, and age proof
• Attach two passport-sized photographs
• Provide a check for the deposit amount
• Add nominees to your account

Eligibility criteria for SCSS

• You should be an Indian citizen; a Non-Resident Indian (NRI), Person of Indian Origin (PIO), and Hindu Undivided Family (HUF) are not eligible for the SCSS.
• All Indian residents aged 60 years and over are eligible with the following conditions:
• Retired individuals aged between 55 and 60 years who have opted for voluntary retirement or superannuation must apply for the scheme within one month of receiving their retirement benefits.
• If all other conditions are fulfilled, retired defense personnel can avail of the senior citizens’ scheme.

Benefits of investing in SCSS

Here are five benefits of investing in the Sr. Citizens Savings Scheme.

• Since the scheme is backed by the government, it provides assured returns and is a safe and reliable investment option for senior citizens.
• Interest is paid quarterly, giving senior citizens a regular source of income during their post-retirement years.
• Compared to other fixed-income investments like fixed deposits (FDs) and savings accounts, the SCSS interest rate is higher (presently 7.40%), thus delivering more returns.
• The process to open an SCSS account is simple, and you can open one with an authorized bank or post office.
• Investments of up to INR 1.50 lakhs in SCSS are exempt from tax under section 80C of the Income Tax Act, 1961.

Limitations of SCSS

SCSS is an excellent scheme for investors. However, it entails some limitations as listed below:

• The investment horizon is limited to five years with a one-time extension of three years, which means the maximum tenure is limited to eight years.
• Although the SCSS account can be closed prematurely, you will have to pay some penalty.
• Your actual returns on investment are reduced as the interest earnings are taxable; additionally, if the annual interest earnings exceed INR 50,000, tax deducted at source (TDS) is applicable.
• The maximum deposit is limited to the lower of INR 15 lakhs or the actual benefits received on retirement.

What are the documents required to apply for SCSS?

• Permanent Account Number (PAN) card copy
• Address and identity proof, such as Aadhar card, job card issued by the National Rural Employment Guarantee Act (NREGA) signed by a state officer, passport, voter ID, or Regional Transport Office (RTO)-issued driving license.
• If you are below 60 years old, you need to submit the following additional documents:
• Employer certificate showing details of superannuation retirement or otherwise, benefits received, employment held, and period for which you were employed.
• The date on which the retirement benefits were disbursed.

SCSS vs. Fixed deposits (FDs)

Who can invest in the Senior Citizens Savings Scheme?

• Indian citizens aged 60 years and above
• Retired defense personnel aged over 50 years but below 60 years
• Individuals who opt for VRS or superannuation and are aged between 55 and 60 years

SCSS tax benefits

The principal amount of up to INR 1.50 lakhs per year deposited into your SCSS account is eligible for tax benefits under section 80C of the Income Tax Act, 1961.

What is the deposit limit under SCSS?

• Minimum amount: INR 1000
• Maximum amount: INR 15 lakhs or actual retirement benefits received, whichever is lower

Premature closure of SCSS

You may close the SCSS account one year from the date of opening; however, a penalty depending on when you prematurely withdraw the amount is charged as below:

• If you withdraw before two years from the account opening date, 5% of the deposit amount is deducted as a penalty.
• If you withdraw after two years but before five years from the date of opening the account, 1% of the deposit is charged as a penalty.

Banks that offer SCSS account facility

Most private and public sector banks allow you to open an SCSS account. Some of these banks are as follows:

Frequently Asked Questions (FAQs)

What is SCSS?

Wondering what is SCSS? It is a government-backed savings scheme for senior citizens that offer assured returns to ensure the investors earn a regular income during their post-retirement years.

Can you open an SCSS account online?

No, currently you can open an SCSS account only by visiting the closest post office or an authorized bank branch.

Can you open a joint SCSS account with a family member?

A joint SCSS account can be opened only with your spouse by investing a minimum of INR 1,000 up to a maximum of INR 15 lakhs.

What are the eligibility norms for joint accounts?

The age of the first depositor should be 60 years or above. Your spouse can be aged 60 years or below.

Can both spouses open separate SCSS accounts?

Yes, if both spouses are eligible as per the SCSS rules, they can open separate accounts while adhering to the minimum and maximum deposit norms.

What is the share of the joint account holders?

The entire deposit amount is attributed to the primary applicant or depositor. The spouse does not have any share of the amount deposited into the SCSS account.

Are there any tax benefits available on SCSS investments?

Yes, an amount of up to INR 1.50 lakhs per year is exempt from tax under section 80C of the Income Tax Act, 1961.

Is TDS applicable to the interest earned?

If the annual income based on the prevalent Senior Citizens Savings Scheme interest rate exceeds INR 50,000, then TDS is applicable.

Additionally, you have to pay the tax on the entire interest earnings as per your applicable income tax slab.

Is premature withdrawal allowed?

Yes, you may withdraw the amount from your SCSS account after one year of the account opening date; however, a premature withdrawal penalty is applicable depending on when you withdraw the amount.

Can you extend the SCSS account?

Yes, you can extend the account by three years from the date of maturity.