Know why a senior citizen should invest in Senior Citizen Savings Scheme?

Last Updated On: Aug. 13, 2020, 7:50 p.m.



Senior Citizen Saving Scheme is a scheme sponsored by the government which is a saving instrument for individuals above the age of 60. This was introduced by the government in the year 2004 to provide senior citizens with a secure source of income for their post-retirement.

The interest rates offered by banks on fixed deposits have come down to around 6%. All retired citizens find it difficult though the private banks and corporate offer higher rates they cannot risk their limited resources there. In such an environment government-guaranteed Senior Citizen Savings Scheme (SCSS) offer a better alternative.


Who is eligible to deposit money in SCSS?

  • An individual who is a resident under the Foreign Exchange Management Act over 60 years can open accounts under SCSS.
  • The Account opened can be a joint account or a single account with your spouse only.
  • A spouse under the age of 60, can be even made the second holder and the spouse can also open an account if she/he satisfies the specific conditions.
  • Non-residents are not allowed to open the SCSS account but the can continue the account after they become non-resident. They are not allowed to renew it beyond the initial tenure of five years. You can open an SCSS account with any post office or designated branches of the authorized banks.
  • A HUF cannot open accounts under SCSS.
  • Those who have taken voluntary retirement or superannuation can open this account even before completion of 60 years of age but not before completing 55 years. The account has to be opened within one month from the date of receipt of the retirement benefits. 


Nomination and closure of account on the account holder:

The nominations can be made in favor of one or more persons. The nomination can be made at the initial stage or can be made, canceled, or modified anytime during the lifetime of the account holder.


Tenure and premature withdrawal

The SCSS has a tenure of five years in the initial stage which can be extended only once for a period of three years. During the currency of the account, you are allowed to prematurely withdraw the money but not before completion of one year though with some penalty In case the account is closed before the second year a penalty of 1.5% of the deposit amount is recovered. For the accounts closed after two years, the applicable penalty is 1%.

As you cannot withdraw any money deposited under this scheme during the first year please assess your fund's requirement for one year properly before committing your funds to this scheme.


The rate of interest

The interest on deposits under this scheme is announced by the government for each quarter in advance. The rate applicable for the entire tenure is the rate prevalent at the time of making the deposits and will not be subject to change during the first five years. For extension, the rate applicable will be that prevailing then. The interest rate notified for the quarter beginning 1st July 2020 is 7.4%. The interest under SCSS is payable quarterly.  There is no cumulative option under SCSS. The first interest is paid from the date of making the deposit until the end of the quarter and subsequently for each quarter.


Tax provisions applicable for deposits and interest

The deposits made under SCSS are eligible for deduction under Section 80 C up to Rs. 1.50 lakhs each year along with other eligible items. This provision is significant when other avenues for claiming tax deductions under Section 80 C like life insurance premium, payment towards pension plan, contribution to EPF account, ULIP, etc. are no longer workable for senior citizens. So Instead of putting the entire amount of 15 lakhs in a single year, you can spread the same over the years to maximize the benefits under Section 80C.

The interest received under SCSS is fully taxable. The bank will deduct tax @ 10% if the amount of interest exceeds 50,000/- in a year for senior citizen account holders. For others the threshold limit for TDS is Rs.  40,000/- per year. In case of interest for the whole year exceeds the threshold of TDS, you can submit form no 15H if you are a senior citizen or 15G in other cases for receipt of interest without deduction of tax at source if you are eligible to submit such forms.

If you are a Senior citizen and have made deposits under this scheme you are entitled to claim a deduction upto Rs. 50,000/- for interest received under this scheme along with other interest earned by you from banks and post offices under Section 80 TTB.


How to claim money on the death of the account holder:

In the eventuality of the death of a single holder, the balance outstanding under the scheme with interest becomes payable to the nominee/s in case nomination is made. In case the nomination is not made the legal hairs can claim it after following a tedious procedure. So it is advisable to have nomination made at the time of making the deposits.

In case of joint accounts, the spouse gets an option to continue with the scheme. In case the spouse does not want to continue, the money can be withdrawn. In case the spouse already has deposits under this scheme, the aggregate of deposits under this scheme is restricted to fifteen lakhs.  In case the aggregate exceeds the threshold, the spouse has to withdraw the excess deposit.

Since the deposits under this scheme earn you higher returns than those generally available under other comparable safe investment avenues, it should be the first choice of senior citizens who want risk free returns on their investments.


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