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A Complete Guide to the Senior Citizen Savings Scheme (SCSS)

What is the Senior Citizens Savings Scheme?

The Senior Citizen Savings Scheme is a Government of India initiative for retired citizens of India who have reached the age of 60 years. This scheme was launched in 2004 to provide a secure and steady source of income to senior citizens over 60 years during their retirement.

The most important feature of the SCSS is that the Government of India backs it, and investors don't face the risk of capital loss. To apply for this scheme, individuals can approach the nearest post office or private or public sector bank. Investors get guaranteed returns quarterly from the sr citizen saving scheme. However, the rate of return varies and is reset every quarter by the Government.

The upper investment limit in SCSS is INR 15 lacs; even if you hold multiple accounts, the total amount cannot exceed INR 15 lacs.

Find out the main features of SCSS in the next section.

Main Features of the Senior Citizen Savings Scheme

Interest Rate

The rate reviewed every quarter is 7.6%. The interest rate you get at the time of investing in SCSS remains constant only for a particular quarter, and they are revised in the next quarter depending on how the interest rates in the market have moved.

If the economic conditions remain stable over the 5 years without many fluctuations in interest rates, then the interest rate offered by SCSS will remain the same.

Duration

The duration is 5 years (there is an option to extend it for 3 years). Form B has to be filled out to extend the account for another three years. The extension is allowed only once, and the interest rate depends on the quarterly rate at the time of the scheme extension.

So, the total tenure for an individual SCSS is 8 years, 5 years plus 3 years. The application for the 3-year extension needs to be made within a year of the scheme's maturity. Otherwise, the extension will not be allowed.

Minimum Investment

The minimum investment you can make in the Senior Citizen Savings Scheme (SCSS) is INR 1000.

Maximum Investment

Lower of INR 15 lacs or the amount received on retirement. If the investor gets INR 10 lacs as a retirement benefit, they can invest INR 10 lacs. If any amount is paid into the SCSS in excess of INR 15 lakhs, the excess amount will be refunded immediately. The depositor will only be paid the savings account interest from the date of the excess deposit.

Penalty for Premature Withdrawal

The penalty for premature withdrawals is 1.5% of the total deposit if the withdrawal is before 2 years. The withdrawal can take place only after the completion of a year.

The penalty for premature withdrawals is 1% of the total deposit if withdrawn after 2 years. During the extension period, however, you can close the account after one year without paying any penalty.

However, if the subscriber dies before maturity, the nominee is not charged any penalty, and the full amount is paid to the nominee.

Mode of Deposit

For amounts below INR 1 lakh, a cash deposit is allowed. For amounts over INR 1 lakh, only cheques are accepted.

Nomination Facility

You can register a nominee when opening the senior citizen scheme or any time during the scheme's tenure. If the account holder dies before the scheme's maturity, the nominee will be paid the due amount.

If the nomination is made after opening the account and before the maturity of the SCSS Scheme, then an application in Form C needs to be made for nomination. The depositor can, at any point in time during the scheme, cancel the nomination and make a fresh nomination.

Higher Returns

Returns from SCSS are as high as other savings products like fixed deposits and recurring deposits. Since this is a Government-backed scheme, your principal amount is safe. The income from SCSS is fixed for the quarter and is not affected by any interest rate fluctuations in the market.

Benefits of the Senior Citizen Savings Scheme (SCSS)

  1. Guaranteed Returns: Since the Government backs the SCSS, the returns are guaranteed.
  2. Government-backed security: Your principal amount is safe with SCSS since this is a Government sponsored scheme.
  3. High Returns compared to Bank FD or Recurring Deposits: The Returns from SCSS are at par with fixed deposits and recurring deposit rates offered by banks.
  4. Tax deduction of INR 1.5 lakhs under section 80C of the IT Act 1961: Investments in SCSS qualify for tax deductions under Section 80C, lowering your tax liability.
  5. Easy Process: Investing in the Senior Citizens Savings Scheme is easy. All you need to do is visit your nearest bank or post office and open an account. You don't need to worry about KYC formalities if you go through your existing bank or post office.

What is the Interest Rate offered by SCSS?

The interest rate paid by the senior citizen scheme for the third quarter (October to December) for FY 22-23 is 7.6%. Interest is paid on 31st March, 30th June, 30th September, and 31st December every year, and the amount is directly credited to the account.

The interest rate for the senior citizen scheme is reviewed every quarter and may change depending on the prevailing market rates, inflation, and other factors.

How is Interest Calculated Under Senior Citizen Savings Scheme?

Interest is compounded on a quarterly basis under Senior Citizen Savings Scheme and paid out at each quarter on 1st April, 1st July, 1st October, and 1st January. The following are considered when calculating the quarterly interest:

  1. The principal or amount deposited
  2. Rate of Interest
  3. Maturity Period

The principal amount depends on the investor and the maturity period is fixed (5 years). The rate of interest varies at each quarter.

Let us understand the interest payable under SCSS with an example. Mr Roy invested INR 15 lakhs under the senior citizen scheme on 1st April 2021. Here is what Mr Roy is going to get quarterly as interest.

Interest Rate for FY 2021-22: 7.4%

Amount Invested: INR 15 lacs

Period: 1 year

Interest Amount: INR 15,00,000 * 7.4% = INR 1,11,000.

What is the Process for Opening a Senior Citizens' Savings Scheme Account?

The procedure for opening a senior citizen scheme with any bank or post office is similar.

Step 1: Approach your nearest branch or post office

Step 2: Fill up form A

Step 3: Submit your address and identity proof in original and photocopy

Step 4: Provide age proof

Process for Opening SCSS at the Post Office

You can either visit the post office to get the application form for SCSS or download it from the post office website. The process for applying for the senior citizen scheme at the post office is as under:

  1. Name of the post office branch to be entered on the left top corner of the form
  2. If you don't have a Post Office savings account, you need to open one. Otherwise, enter your savings account number
  3. The application is to be addressed to the post office branch address
  4. The account holder's photo is to be pasted into the given space
  5. Fill in the account holder's name followed by the option SCSS given in the drop-down menu
  6. Ignore the Additional Facilities section if you have a savings account
  7. Choose from the account holder type. Choices are self and minor with guardian.
  8. Choose the mode of holding. It could be a single or either or survivor
  9. Enter the amount to be invested in figures and words
  10. Enter the personal details of the account holder
  11. Tick the documents being provided as address and identity proof
  12. Account holders need to sign at the bottom of both Page 1 and Page 2
  13. Share nominee details in the relevant space, including contact information, and the account holder has to sign here to confirm this information.

Process for Opening an SCSS Account at the Bank

Here is the procedure for opening an SCSS Account at the bank:

  1. Visit the branch where you have a savings account.
  2. Provide your personal information in the application form.
  3. The application form, supporting documents, and an account payee cheque in favour of the Senior Citizen Savings Scheme should be submitted to the bank.
  4. After the bank processes your application and receives the funds, the SCSS account will be opened.

Some banks that offer the senior citizen scheme include ICICI Bank, SBI, IDBI Bank, Union Bank of India, Indian Overseas Bank, UCO Bank, and more.

Who is Eligible to Apply for SCSS?

The following categories of employees are eligible to apply for the Senior Citizen Savings Scheme:

  • Any individual who is over 60 years of age
  • Retired individuals over 55 but under 60 years of age have opted for a Voluntary Retirement Scheme (VRS). For retired defense employees, the age group is between 50 and 60. The account must be opened within a month of receiving retirement benefits.

The following categories of people are not eligible for SCSS:

What Documents Do You Need For Opening an SCSS?

To open a Senior Citizen Savings Schemethe following documents are required:

  1. Aadhar Card
  2. Electricity Bill
  3. Senior Citizen card/Birth certificate
  4. Passport
  5. PAN Card
  6. Voter ID card
  7. 2 passport-size photos

You need to make sure that all these documents are self-attested before submission.

What are the Tax Benefits of the Senior Citizen Savings Scheme?

Not only does the Senior Citizen Savings Scheme offer capital protection and high returns, but there are tax benefits too.

Here are the tax benefits of this scheme:

  • You can avail of an INR 1.5-lakh tax deduction under the SCSS for the principal amount invested (under the old tax regime). This benefit is not available under the new IT scheme.
  • Interest received from the SCSS is, however, taxable at the tax slab of the subscriber. If the applicant's total interest income exceeds INR 50,000/-, the interest from SCSS is subject to TDS (tax deducted at source).

If the subscriber of the sr citizen savings scheme passes away before maturity, the account is closed. The legal heirs or nominees of the subscriber can claim the amount.

To make a deceased claim, the nominee or legal heir needs to make an application to the respective post office or bank. The letter needs to mention all details like the name of the deceased subscriber, the number of the sr citizen savings scheme, and the amount deposited.

The nominee then needs to apply for the SCSS Scheme along with the scheme passbook. Form F duly filled up, a canceled cheque of the nominee's bank account to the respective bank or post office. The bank or post office will verify the deceased claim application, and if all the documents required are in order, then the bank or post office will issue a cheque for the claim proceeds.

However, it should be noted that the joint holder has the right to the amount deposited in the case of a Senior Citizen Savings Scheme (SCSS). In this case, the nominee has no right to claim the money. If both the joint holders in SCSS pass away before maturity, in that case, the nominees can claim the deposit amount.

Conclusion

The Senior Citizen Savings Scheme is a Government-backed scheme meant for senior citizens of India. Since it is a Government initiative, the principal amount is safe. The SCSS also provides a high rate of return similar to a Bank FD or a recurring deposit.

Citizens who have reached 60 years of age or between 55 and 60 and have taken voluntary retirement are eligible for the senior citizen scheme. Senior citizens need a stable and regular income during their retirement years, and the Senior Citizen Savings Scheme is a perfect solution.

Not only can you expect good returns on a quarterly basis, but you can also get tax benefits under section 80C for investments in the senior citizen scheme. The maximum income tax deduction you can get is INR 1.5 lakhs.

If you are a senior citizen, visit your nearest bank or post office to open your Senior Citizen Savings Scheme account today. Apply through your present bank or post office where you have an account since you don't need to submit the KYC documents again. Enjoy a hassle-free life during your retirement years with the senior citizen scheme.

FAQs

Will You Need to Pay a Penalty for Premature Withdrawal from SCSS?

You will have to pay the penalty for premature withdrawal from the Senior Citizen Savings Scheme. If you want to withdraw the deposited amount within 2 years, you will have to pay a penalty of 1.5% of the deposit amount. If you withdraw the deposit amount after 2 years, then the penalty amount is reduced to 1% of the deposit amount.

During the extension period of 3 years, you can withdraw the deposit amount after a year without paying any penalty. Partial withdrawals are allowed after one year of opening the account without penalty.

Can Withdrawal Be Made Without Payment of Penalty?

Yes, withdrawal of the entire deposit is possible without a penalty by the nominee of the sr citizen savings scheme. There is no lock-in period for the nominee. Registering the nominee at the time of application or after opening the account during the subscriber's lifetime is important.

Will You Get the Same Interest Rate Till the Maturity of the SCSS?

No, subscribers to the Senior Citizen Savings Scheme Scss will not get the same interest rate for the 5 years of the scheme. Interest rates are revised every quarter depending on the market rates of interest and inflation.

Can You Invest Over INR 15 lacs in the Senior Citizen Savings Scheme?

No, you cannot invest over INR 15 lacs in the Senior Citizen Savings Scheme. Whether you invest as a single holder or jointly with your spouse, the INR 15-lakh limit is applicable.

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