Senior citizen savings scheme: Why it makes a good addition to retirement planning

Planning your retirement? Senior Citizen Savings Scheme can offer you regular pay-outs, tax saving opportunities, and low risk. Here are some benefits from this government scheme.

Senior citizen savings scheme: Why it makes a good addition to retirement planning

The Senior Citizens Savings Scheme (SCSS) is an investment scheme made available by the government. This saving program offers interest rates that are usually higher than Fixed Deposit rates, it provides security of capital, as well as long-term benefits and returns to senior citizens, and this is what makes SCSS a great addition to any retirement plan. 

How does SCSS work?

When you open an SCSS account, you make a one-time deposit for typically 5 years. You then receive an interest that accumulates on this amount every quarter. For many saving plans such as the SCSS, the rate of interest offered is reviewed every quarter by the Ministry of Finance and subject to periodic revisions. For the third quarter of the financial year 2019-20, starting from October 01 to December 31, the interest rate offered is 8.6% per annum, which has remained unchanged from the previous quarter.

Related: Best countries to retire in and why

Who offers the scheme?

The SCSS scheme, sponsored by Indian government, is administered to the public through the Indian Postal Department and a list of certified banks. 

Are you eligible for this plan?

There are certain criteria you must meet to be eligible for this savings scheme. 

  • Are you 60 years of age or above? If yes, then you are eligible for SCSS.
  • Not 60, but officially retired? Don’t fret. Any individual who has retired and falls under the age bracket of 55-60 can also benefit from SCSS, provided you retire as per VRS (Voluntary Retirement Scheme) or superannuation.
  • Retired Defence personnel can invest in the SCSS as well, without the age-related pre-requisites.
  • Non Residents (NRIs), Persons of Indian Origin (PIOs) and members of a Hindu Undivided Family (HUF) cannot invest in the SCSS.

Things to keep in mind:

  1. Your SCSS account must be opened within one month of the of the date of receipt of retirement benefits.
  2. The amount you invest in SCSS should not exceed the amount of your retirement benefits with a maximum cap of Rs 15 lakh.
  3. You can also open a joint SCSS account with your spouse. Here, the age restrictions will be limited to the primary depositor, may it be you or your spouse.

What is the tenure of this scheme? 

Generally, the tenure for SCSS is 5 years. On maturity, you can opt to extend the tenure by 3 years, if you want. This can be done by sending in an application request. 

What if you want to terminate earlier?

If for any reason you choose to prematurely terminate your account, you will be given access to the accumulated amount.

Things to keep in mind:

  • You can terminate your account only after 1 year.
  • If you choose to terminate after 1 year, but before completing 2 years, a penalty at the rate of 1.5% of your funds gets deducted.
  • If you choose to terminate after 2 years, then a penalty at the rate of 1% of your funds will be deducted.

Related: Living in home versus living in a retirement home in India

How will you receive the accumulated interest and how often?

In the first year, you receive the interest amount on 31st March, 30th September and 31st December.

From the second year onwards, you receive the interest amount on a quarterly basis.
You can collect the amount from the savings account of your bank or post office – where you maintain your SCSS account. Unlike fixed deposits, this scheme does not offer ‘cumulative interest’. The interest rate on SCSS is revised every quarter by the government, however, the interest rate is locked on the date of investment and it remains the same regardless of changes made by the government. The revised rate is reflected only in new investments. 

If you have extended your SCSS account after maturity, the interest rate will then be decided as per the prevalent rate for that scheme on the date of extension.

Is SCSS tax saving?

Investments under this scheme qualifies for tax benefits under Section 80C up to Rs. 1.5 lakh per annum. However, the interest earned is treated as an income, and is therefore taxable. If your income from interest exceeds Rs. 50,000 per year, then your income will also be subjected to tax deduction at source (TDS). This means that even if the total amount of your income isn’t taxable, you will still have to file returns to claim your TDS.

Related: Five Retirement Planning blunders to avoid

Other Benefits of SCSS

You can easily transfer your account from one bank or post office to another

You can assign or change a nominee for your account without any hassles or additional fee.  

Related: Can you afford to live to a 100?

Whether you have planned your retirement or not, consider opting for this savings scheme, as it offers the benefit of high returns. In addition to this, it also offers a steady income, which can come in handy post-retirement. 

In the wake of digital technology, you can now manage your SCSS account online. Some benefits of this include:

Accumulated interest amount is directly deposited in your savings account. 

Account statements containing details of deposit balance and transactions will be forwarded to you via post and/or email.

24 x 7 customer service is available via phone banking facility.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment, insurance, tax or legal advice. You are encouraged to separately obtain independent advice when making decisions in these areas. 

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