SBI Research aiming to render SCSS for senior citizens more attractive has urged it to make completely tax free. The small saving scheme currently offers 8.6% interest and allows senior citizens to make a maximum investment of Rs. 1500000 in the account and earn quarterly interest on it. The interest rate for the scheme is revised quarter on quarter basis based on the yield on 10-year benchmark bonds.
Currently, the interest earned from the SCSS investment is taxable."The government can provide tax exemption to Senior Citizens Savings Scheme (SCSS) to support the senior citizens and this move will have a minimal impact on fiscal deficit of 2 basis points," SBI research team said in a report."Government has an excellent scheme for senior citizens.However, the interest on SCSS is fully taxable which is a major drawback of this scheme," it added in the report.
According the SBI report, March 2018 outstanding amount under the scheme Senior Citizen Savings Scheme was at Rs. 38,662 crore. "It will be fair if such amount is given full tax rebate as the revenue foregone by the government could be only ₹3092 crore, that will have the minimal 2 bps impact on Government fiscal deficit," the report said.
"The impact of declining interest rate regime since 2015 is also being felt by the depositors / pensioners. It is in fact imperative in a country with less than 5% of the population having access to social security, that the bank depositors are at least compensated with a sufficient positive real rate of return and are treated at par with the borrowers too. Further considering that there are more than 4 crore pensioners who have average term deposits of ₹3.34 lakh per account, the net impact on Private Final Consumption Expenditure (PFCE) due to low interest income could be a decline of 30 basis points," the report said.
As per section 80TTB, senior citizens are eligible to claim tax deduction of up to Rs. 50,000 on interest earned on deposits. And if the interest amount earned from SCSS is over Rs. 10,000 in a year then TDS is deducted. Also, the scheme qualifies for the deduction under Section 80C up to the limit of Rs. 1.5 lakh investment in a year.