SBI Economists, in a report, have suggested that in the upcoming Union Budget 2021 scheduled to be presented on 1 February, the government should consider making interest income from Senior Citizens Savings Scheme tax-free. It has also suggested a higher tax-free interest income limit on deposits by senior citizens.
"Government has an excellent scheme for senior citizens. Under Senior Citizens Savings Scheme (SCSS), a senior citizen can deposit Rs 15 lakh. However, the interest on Senior Citizens Savings Scheme is fully taxable which is a major drawback of this scheme. We propose full tax rebate of this interest income," says an SBI report.
TDS (tax deducted at source) is charged on the total interest income from Senior Citizens Savings Scheme if it exceeds Rs 50,000 in a financial year. However, it is tax-free if form 15 G/15H is submitted.
"Under 80TTB interest income from deposits by senior citizen (Savings bank accounts, fixed deposits, recurring deposit accounts) up to Rs 50,000 is exempted from income tax. This threshold may be increased to Rs 1 lakh," the SBI report said.
The Senior Citizen Savings Scheme is a government-backed savings instrument offered to Indian residents over the age of 60 years and in some cases even to those between 50 to 60 years, that allows them to make large fixed deposits for regular interest income. The deposit is locked for a period of 5 years but this period can be extended once by 3 years. The maximum investment limit is Rs 15 lakh per individual.
Currently, it offers an interest rate of 7.4%, an attractive rate compared to other small savings schemes. Small savings schemes like PPF comes with full tax-exemption benefits on deposit, interest earned as well as maturity amount.
Like other government-back schemes, these can be invested in through banks or post office.
Rate of interest on SCSS is reviewed quarterly by the Ministry of Finance and subject to periodic change. Interest on these deposits is calculated and credited quarterly.