SCSS+RBI bonds: Senior citizens can get ₹4 lakh/year by investing just ₹50 lakh; here's how

Here's the math

SCSS currently offers 8.2% per annum on a maximum deposit of ₹30 lakh, with interest paid quarterly. The RBI Floating Rate Savings Bonds, 2020 (Taxable), currently offer 8.05% per annum, with interest paid half-yearly. At these rates, together they can produce an annual income of ₹4,07,000 on a combined investment of ₹50 lakh at an effective yield of approximately 8.14%.

On the ₹30 lakh invested in SCSS alone, the annual interest works out to ₹2,46,000, or ₹61,500 every quarter. On ₹20 lakh investment in RBI bonds, the annual interest comes to ₹1,61,000, or ₹80,500 every six months. Adding the two streams, a retiree can receive ₹4,07,000 over the year.

How these schemes complement each other

What happens to the principal

The principal is preserved and returned to the accountholder at maturity under both schemes. However, they have different tenures. SCSS has a five-year maturity, extendable by three years. The India Post website says that the SCSS account may be closed after 5 year from the date of opening and can be extended for further period for 3 years.

The RBI bonds have a seven-year tenure. The RBI's operational guidelines state that "the bonds shall be repayable on the expiration of 7 (Seven) years from the date of issue". However, senior citizens are allowed to break the bond lock-in. For those aged 60 to 70, premature withdrawal is allowed after six years. For those aged 70 to 80, the lock-in is five years. Those above 80 can exit after four years. A penalty of 50% of the last coupon payment applies on early exit.

Taxation

SCSS deposits qualify for deduction under Section 80C of the Income-tax Act, 1961 up to ₹1.5 lakh, but the interest is fully taxable. TDS can deducted if total interest across all SCSS accounts exceeds ₹50,000 in a financial year. The RBI bonds offer no tax deduction on investment, and the interest is fully taxable. However, TDS applies if annual interest exceeds ₹10,000.