Read on to know what is Senior Citizen Savings Scheme and if investing in it can save you tax
The Senior Citizen Savings Scheme (SCSS) is a government-backed scheme assuring a regular and guaranteed income for retirees. The main objective of this scheme is to provide an assured return to senior citizens. The interest is paid-out quarterly and helps create a regular income for the retirees.
This scheme currently provides a 7.4 per cent return per annum compounded annually. While the interest rate offered on SCSS gets revised every quarter, it gets locked for the entire tenure of five years as applicable on the day of making the investment. You can prematurely close it by paying the penalty. But, does investing in an SCSS give you any tax benefits?
Yes, the sum invested in the SCSS is eligible for tax deduction under section 80C of the Income Tax Act. But one must remember that the maximum deduction allowed under section 80C is restricted to Rs 1.5 lakh only. So even if you have invested a higher sum, say Rs 10 lakh, an investment of only Rs 1.5 lakh is eligible for deduction. Also, even on opening a new SCSS account after years of maturity of the old one, you can still avail of the tax benefit under section 80C for the new SCSS.
However, the interest earned on the deposit is fully taxable as per the slab applicable to your taxable income. TDS provisions are also applicable to the interest earned on SCSS. So if the interest earned by you on SCSS exceeds Rs 50,000, the bank applies a 10 per cent deduction before transferring the interest to your account.
However, senior citizens can claim a deduction of Rs 50,000 under section 80TTB of the Income Tax Act. This section is available specifically to senior citizens for providing a deduction on interest income. Also, if your total income does not exceed the minimum taxable threshold, you can request the bank to not deduct the TDS by giving a declaration in Form 15H.
Suggested read: Can a new SCSS account be opened after the completion of the maturity period?