While retirement often comes with financial uncertainty, there are savings products that are safe and ensure guaranteed retirement income. The Senior Citizen Savings Scheme (SCSS), launched in 2004, is one such deposit scheme. Introduced by the Government of India, the main objective of the SCSS is to provide an assured return (paid every quarter) to senior citizens, and in doing so to create a guaranteed regular income flow.
Capital Protection and Inflation Protection
The capital in the SCSS is completely protected as the scheme is backed by the Government of India. It is however not inflation protected, which means whenever inflation is above the current interest rate, the deposit earns no real returns. However, when the inflation rate is below the current interest rate, it does manage a positive real rate of return.
Guarantee
Interest rates are aligned with G-sec rates of similar maturity, with a spread of 1 per cent. The government reviews the SCSS rates quarterly. However, once a subscriber has enrolled, the rates will remain unchanged for the tenure. For the third quarter of FY20-21, the rate has been set at 7.4 per cent, compounded annually. The payout of interest is quarterly.
Exit Option
Premature closing of the account is permitted with a penalty.
Liquidity
The SCSS is liquid, despite the five-year lock-in. One can make withdrawals subject to conditions and penalties.
Tax Implications
The sum invested in the SCSS on or after April 1, 2007, is eligible for tax deduction under Section 80C of the Income Tax Act. However, the interest earned on the deposit is fully taxable and tax is deducted at source (TDS) if the total interest in a year is above Rs 50,000. However, if the income is not taxable, one has to provide Form 15H or Form 15G so that no tax is deducted at the source.
Where to Open an Account
The SCSS account can be opened at any head post office or general post office. Select branches of several designated nationalised banks offer the SCSS. ICICI Bank also offers the SCSS.
How to Open an Account
Once you have selected the bank to open the SCSS account, you will first need to open a savings bank account. You will need the following documents:
- An account-opening form, which the bank will provide
- Two passport-size photographs
- Address and identity proof such as the Aadhaar card, passport, PAN (permanent account number) card or declaration in Form 60 or 61 as per the Income Tax Act, 1961, driving licence, voter's identity card or ration card.
- Carry original identity proof for verification at the time of account opening.
Points to Remember
- Portability of the account from one bank to another is available.
- ECS transfer of interest to the savings account can be done.
- There is penalty in the case of early closure of the account.
- The facility of pledging the deposit in the SCSS account to obtain loans is not permitted as it defeats the purpose of regular income.
- Premature withdrawal or closure of the SCSS account is permitted after completion of one year from the date of opening the account after deducting a penalty for early withdrawal or closure. The penalty varies from 1-1.5 per cent, depending on the completed tenure of the account.
- If the account is closed after the first year and before the end of the second year, an amount equal to 1.5 per cent of the deposit is deducted as penalty.
- If the account is closed on or after the second year, an amount equal to 1 per cent of the deposit is deducted.
Features at a Glance
Eligibility: You need to be a resident Indian to open an account
Entry age:
- 60 years
- 55 years for those who have retired on superannuation or under a voluntary or special voluntary scheme
- The retired personnel of defence services (excluding civilian-defence employees) are eligible to invest irrespective of the age limit subject to the fulfillment of specified conditions
Minimum Investment: Rs 1,000
Maximum Investment: Rs 15 lakh (Rs 30 lakh jointly with spouse); Deposits have to be in multiples of Rs 1,000
Interest
- 7.4 per cent per annum compounded annually
- The interest is paid on the last working day of April, July, October and January
Tenure: Five years; can be extended by three more years
Account-holding categories
- Individual
- Jointly with spouse
- Multiple accounts allowed
Nomination Facility: Available
