What is the Senior Citizen Savings Scheme (SCSS)?

 

The Senior Citizen Savings Scheme (SCSS) is a government-backed savings scheme in India that is designed to provide financial security and regular income to senior citizens. It is one of the many small savings schemes offered by the Government of India through post offices and authorized banks. The SCSS is governed by the Ministry of Finance and is available to Indian residents who are 60 years of age or older. In some cases, individuals who are 55 or older but less than 60 and have retired on superannuation or VRS (Voluntary Retirement Scheme) can also open an SCSS account.

 

How does it work?

 

Step 1: You deposit a certain amount of money

 

Step 2: The interest rate that is applicable on that day is locked for the entire tenure.

 

Step 3: Interest is calculated and credited to your savings account after one month from the date of account opening and so on till maturity.

 

Step 4: On maturity, you get back the principal amount, what you invested initially along with any accumulated interest. Also if you want to reinvest you can reinvest the amount for another block of 5 years. 

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How much one can Invest?

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• The minimum one can invest is ₹ 1000/- and in multiples of ₹ 1000/- thereafter.

• The maximum investment limit is INR 30 lakh in a single account

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Interest Rate :

 

The Interest offered by the Senior Citizen Savings Scheme as of 1st July 2023 is 8.20% p.a. payable quarterly. Interest can be drawn through auto credit into a savings account standing at the same post office, or ECS. 

 

The Interest is however taxable in the hands of investors. The interest is straight away added to the income of investors. If an investor is in a 30% tax bracket the net yield after tax comes to 5.18 per cent. Hence it is not advisable for investors in such a high bracket to invest in this product.

 

Interest on the deposit will be paid once every quarter.

 

Taxation:

 

Investment under this scheme qualifies for the benefit of section 80C of the Income Tax Act, 1961. The interest income from SCSS is added to investors' income and taxed according to the tax slab. As explained earlier investors in high tax brackets will have to bear higher taxes on their interest income.

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Interest is taxable if total interest in all SCSS accounts exceeds Rs.50,000/- in a financial year and TDS at the prescribed rate shall be deducted from the total interest paid. No TDS will be deducted if form 15 G/15H is submitted and accrued interest is not above the prescribed limit.

 

Lock-in Period :

 

The lock-in period for Post Office MIS is 5 years.  However, in case of emergency one is allowed to prematurely close the Post office MIS.

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​     (i) The account can be prematurely closed any time after the date of opening.
     (ii) if the account is closed before 1 year, no interest will be payable and if any interest paid in the account shall be recovered from the principal.
     (iii) If the account closed after 1 year but before 2 years from the date of opening, an amount equal to 1.5 % will be deducted from the principal amount.
     (iv) If the account is closed after 2 years but before 5 years from the date of opening, an amount equal to 1 % will be deducted from the principal amount.
     (v) Extended account can be closed after the expiry of one year from the date of extension of the account without any deduction.

 

What happens in case of death?

 

In case of the death of the account holder, from the date of death, the account shall earn interest at the rate of the PO Savings Account.

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In case the spouse is a joint holder or a sole nominee, the account can be continued till maturity if the spouse is eligible to open an SCSS account and not have another SCSS Account.

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How does one start investing in SCSS?

 

One can visit their nearby post office and start their investment in SCSS. One form needs to be signed and a KYC document needs to be submitted along with the initial investment payment. KYC documents will include one recent photograph, Pan card copy, an Aadhaar Card copy, a Passport or a Driving License.

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Extension of the Account : 

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• The account holder may extend the account for a further period of 3 years from the date of maturity by submitting the prescribed form with a passbook at the concerned post office.

• The account can be extended within 1 year of maturity.

• Extended account shall earn interest at the rate applicable on the date of maturity.

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Suitability :

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SCSS as an investment is suitable for investors who want a regular income from their investments and don’t want to take risks on their investments. Only risk-averse investors should opt for this investment. If you are looking for long-term you can always look at other investment options available like Hybrid Mutual Funds. Almost all mutual funds now offer a Systematic Withdrawal Plan on their schemes, which works just like monthly income and is more tax efficient.

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Also, for the long term one should take some risks and invest in Equity Mutual Funds and make better returns on their investment.