Senior Citizen Savings Scheme – Meaning, Features, Interest Rate, and Benefits

The government of India has ensured that the senior citizens of the country have an opportunity to save and invest safely to earn regular income post-retirement. Through the senior citizen saving scheme (SCSS), citizens aged above 60 can invest and earn a regular income to cover their expenses. Read to find out more about the senior citizen savings scheme, interest rate, and benefits.

What is the Senior Citizen Savings Scheme?

The senior citizen savings scheme (SCSS) is a post office savings scheme for citizens aged above 60. Being a government-backed retirement scheme, it is risk-free. It offers regular income in the form of interest to the depositors who invest in lumpsum, either individually or jointly. The interest is paid every quarter at the interest rate decided by the government. SCSS matures after five years; however, the tenure can be extended for another three years.

The following are the features of the senior citizen savings scheme:

Minimum and maximum deposit

The minimum amount of deposit for the scheme is Rs 1,000 or in multiples of Rs 1,000. The maximum amount of deposit is Rs 30 lakhs. In Union Budget 2023, the finance minister has increased the limit from Rs 15 lakhs to Rs 30 lakhs. You can deposit in cash or cheque. However, cash is only accepted if the deposit amount is below Rs 1 lakh. For deposits greater than Rs 1 lakh, you must pay through cheque.

Number of accounts

You can open more than one account for SCSS at an authorized bank or post office near you. All accounts can be either individual or joint accounts.

Interest rate

The interest rate for SCSS is decided by the government every quarter. For the January 2023 quarter, the interest rate on the scheme is 8% per annum. The interest is paid every quarter and gets credited to your bank account on the first of April, July, October, and January. Although the government changes the interest every quarter, the interest rate on the day you invest gets locked in for the entire tenure.

Tenure

As discussed above, the maximum tenure for the scheme is five years. It can be extended for another three years by submitting an application to the bank or post office. The application should be given in the fourth year, i.e., one year before the scheme matures.

Nomination

SCSS has a nomination facility. Hence you can nominate a person for your investment either at the time of opening the account or during the tenure.

Premature withdrawals and closure

You can withdraw your money prematurely without any penalty one year from account opening. However, if you withdraw after one year but before two years from account opening, you must pay a penalty of 1.5% on the principal. If in case, you withdraw it after two years, but within five years, you will be charged 1% as a penalty on the principal.

How SCSS works?

If you are aged above 60, you are eligible to invest in a senior citizen savings scheme. You can open an account at any bank or the nearest post office. You can open individual or joint accounts with a minimum investment of Rs 1,000 and a maximum of Rs 30 lakhs.

Once you open the account, you will get interest payments every quarter, which will be credited to your bank account. At present, the interest rate is 8% per annum, but it changes every quarter, as per the government's guidelines.

The scheme has a tenure of five years. At the end of five years, the principal amount is given back to you. You can also choose to extend the scheme for another three years to receive interest. Since the scheme is backed by the government, it is completely risk-free. So, you need not worry about your investments during retirement.

Eligibility for Senior Citizen Savings Scheme

To invest in SCSS, you must be eligible. The following are the eligibility criteria.

• Only Indian citizens aged above 60 years can invest in the scheme.
• Retirees between the ages of 55 and 60 who have opted for voluntary retirement or superannuation.
• Retired defence personnel aged above 50 but below 60 years
• Non-resident Indians (NRI), Persons of Indian Origin (PIO), and members of Hindu Undivided Family (HUF) cannot invest in the scheme.

Documents required to open SCSS account

Following are the documents required to open a senior citizen savings scheme account.

• Proof of age – Senior citizen identity card, birth certificate, PAN Card, Voter ID
• Proof of identity – Aadhar Card, Pan Card, Passport
• Proof of address – Aadhar Card, telephone bills, or other utility bills
• Two passport-size photographs

All copies of the documents must be self-attested by the depositor

Interest rate calculation for Senior Citizen Savings Scheme (SCSS)

The interest on SCSS is paid every quarter on the first of April, July, October, and January. So this means the annual interest is divided into four parts and is paid to the depositor. Let’s understand the interest calculation with the help of an example.

Example

If the principal amount is Rs 10,00,000 per annum, and the current interest rate is 8%. The interest per quarter is calculated as given below.

Interest = 1000000*8/(100*4)

Interest = Rs 20,000

The interest per annum would be Rs 80,000 (Rs 20,000*4). And the interest amount for five years would be Rs 4,00,000.

The interest amount will be directly credited to your bank account at the end of the quarter. However, if the interest amount exceeds Rs 50,000 in a year or if you fail to submit form 15G/15H, then TDS (tax deducted at source) will be deducted.

Why is SCSS a good investment option?

The senior citizen savings scheme is a good investment alternative for senior citizens looking for an alternative source of income. Following are some of the reasons why you should consider putting your money in this scheme.

• Simple investing process: Investing in SCSS is very simple. You can open an SCSS account with any authorized bank or post office.
• Risk-free investment: The scheme is backed by the government and hence is considered risk-free.
• Guaranteed returns: SCSS pays interest on the principal amount every quarter. Hence it is one of the most reliable investments for senior citizens.
• High rate of interest: The scheme pays an 8% return per annum, which is higher than a savings account and fixed deposits.
• Regular interest payouts: The interest is paid out every quarter, making it a secondary source of income for retirees.
• Tax benefits: Invest in SCSS qualifies for tax benefits up to Rs 1.5 lakhs under Section 80C of the Income Tax Act 1961. Hence you can claim a deduction on your investment in the scheme.
• Option to extend tenure: The scheme has a fixed tenure of five years. However, you can extend it for another three years. Hence you can earn interest for an additional three years.

Disadvantages of SCSS

• Interest is subject to TDS: The interest is subject to TDS if the interest is above Rs 50,000 per annum.
• Upper limit: The upper limit of the scheme is Rs 30 lakhs. Even if the investors want to invest above this limit, they cannot invest.
• No compounding benefits: Regular interest payouts act as a source of second income for retirees. However, due to regular interest payouts, the investor doesn’t receive any compounding benefit.

Premature closure of SCSS account and withdrawal of money

Although SCSS has a fixed tenure of five years, the government allows premature withdrawal and closure. Following are the premature rules and penalties of the scheme.

If you wish to withdraw within one year from the date of investment, there will be no penalty.

In case you want to withdraw after one year but before two years, then a penalty of 1.5% on the principal is charged.

If you withdraw after two years, then a penalty of 1% on the principal is charged.

However, if the investor deceases before maturity, then no penalties will be charged.

List of Banks offering Senior Citizen Savings Scheme

Apart from the post office, the following banks are authorized to accept SCSS deposits.

Tax implications of SCSS

The investment made in SCSS qualifies for tax deduction under Section 80C of the Income Tax Act, 1961. However, the interest is taxable as per the investor’s income tax slab rate. Moreover, the interest is subject to TDS if the interest earned is above Rs 50,000 per annum.

What is the Post Office Senior Citizen Savings Scheme (SCSS)?

Post Office senior citizen saving scheme is the same as SCSS you read above. Since it is issued by the Post Office, the scheme is called Post Office SCSS.

How to invest in Post office SCSS?

To invest in SCSS through Post Office, you must follow the steps below.

• Collect the SCSS application form from the Post Office near you or from their official website.
• Fill up the form carefully by entering all the required details.
• Attach or upload all the proofs, such as identity, age and address proof, along with two passport-size photos.
• Make the payment through either cheque or online. Give your bank details to get interest every quarter.
• Once done, you are invested in the scheme, and you can receive regular interest payments.

About Pradhan Mantri Vaya Vandana Yojana

Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a government-launched pension scheme for retirees. Under the scheme, the depositor will receive a fixed return of 8% for a duration of ten years. The pension is paid monthly, quarterly, half-yearly, or annually, as per the choice of the investor. There is no premature withdrawal until and unless the money is required for treating the critical illness of the policyholder or their spouse. However, the scheme is discontinued from March 31st 2023, as the government decided to increase the limit for SCSS to Rs 30 lakhs from the existing Rs 15 lakhs.

Frequently Asked Questions

What is the current interest rate of the senior citizen saving scheme (SCSS)?

The current interest rate for SCSS is 8% per annum for the January - March 2023 quarter.

How long is the SCSS rate fixed?

The government decides the SCSS interest rate every quarter. Sometimes it can change or keep it constant as in the previous quarter. The last it changed was for the January 2023 quarter. The interest rate for the October to December 2022 quarter was 7.6%.

What is the maximum and minimum age to open a senior citizen saving account opening?

The minimum age to open SCSS is 60 years. However, defence personnel above age 50 but below 60 can open an SCSS account. Also, citizens who have taken voluntary retirement and are aged between 55-60 years can open the account. There is no maximum age limit to open SCSS.

What is Pradhan Mantri Vaya Vandana Yojana?

Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a government-launched pension scheme for retirees. It is similar to SCSS and pays regular interest to depositors. The interest rate is fixed at 8% and has a tenure of 10 years. However, the scheme is discontinued from March 2023.

When will Pradhan Mantri Vaya Vandana Yojana close?

Pradhan Mantri Vaya Vandana will close on March 31st 2023.

Does the interest rate of SCSS get locked in for five years once opted?

Yes, the interest of SCSS gets locked in for the entire tenure of five years. Even if the SCSS interest rates change later, your interest won't change.

Which is a better option? Opening an SCSS account in a bank or post office?

Both banks and post offices allow you to invest in SCSS for the same interest rate. You must look at your convenience and choose the one closest to you.

Can I get monthly interest on SCSS?

No, SCSS pays interest only every quarter. You cannot get monthly interest from SCSS schemes.

Can I invest every year in SCSS?

No, you cannot invest in the SCSS account every year. You must make a one-time lump sum investment, similar to FD. In case you want to invest more, you can open more than one SCSS account. However, the upper limit of all the deposits is Rs 30 lakhs. So, you can have multiple SCSS accounts, but the total deposited amount of all your SCSS accounts shouldn't exceed Rs 30 lakhs.

Does SCSS have a lock-in period?

Yes, SCSS has a lock-in period of five years. However, you can withdraw your investment prematurely. If you withdraw before one year from the date of investment, the penalty is zero. However, if you withdraw after one year but before two years from account opening, you must pay a penalty of 1.5% on the principal. If, in case, you withdraw it after two years but within five years, you will be charged 1% as a penalty on the principal.

Is TDS (Tax Deducted at Source) applicable on SCSS?

Yes, if the interest exceeds Rs 50,000 per annum, the banks and post office can cut a TDS of 10% on the interest.

Which is a better option: SCSS or Fixed Deposit?

Fixed deposits (FD) have a flexible tenure ranging from seven days to 10 years. In the case of SCSS, it has only one option of 5 years. However, in the case of interest rate, SCSS has a higher rate than senior citizen FDs.

In the case of investment limit, FDs accept up to Rs 2 crore, but SCSS accept only Rs 30 lakhs. With respect to interest payouts, SCSS has regular payouts, and FDs pay interest directly at maturity.

The choice between FDs and SCSS totally depends on your liquidity needs, the interest you expect, and the total amount you want to invest.