What are the penalties for premature closure of an SCSS account?

If I close SCSS FD of Rs 4 lakh after three years, is there any penalty? If any, what is the percentage? - Anonymous

The Senior Citizen Savings Scheme (SCSS) has a tenure of five years and guarantees an annual return of 8 per cent, paid quarterly, for accounts opened between January and March 2023. While the interest rate is revised every quarter, it is only applicable to new accounts. The interest rate prevailing on the day of deposit determines the fixed rate for the entire five-year tenure.

Although the SCSS has a five-year tenure, it can be closed prematurely by submitting an application in Form-2. The following penalties are applicable:

• If you withdraw within one year, you will not receive any interest, and any interest already paid will be deducted from the principal amount.
• If you withdraw between one and two years, 1.5 per cent of the invested amount will be deducted.
• If you withdraw between two and five years, 1 per cent of the invested amount will be deducted.

That means, if you want to close your SCSS account after three years of opening it, a penalty of 1 per cent on the invested amount of Rs 4 lakh would be applicable, amounting to Rs 4,000 (1 per cent of Rs 4 lakh). This would be deducted from the invested amount when it is returned to you.

These rules apply to accounts with an initial tenure of five years. SCSS rules allow for an extension of the account by three years after completing the initial tenure of five years. During the extended period, you can close your account prematurely after one year without paying any penalty, i.e., after six years from the date of your initial investment.

Suggested read: Is partial withdrawal from SCSS permitted?