Owing to the relentless inflation followed by lower interest rates all across, all retired elderly people find it impossible to achieve their financial goals. The interest rates as of now paid on fixed deposits by banks have fallen to about 5 to 6 per cent. For instance, if we look at the interest rates on special FDs provided by SBI, ICICI, HDFC and BOB the current rates are capped at 6.2%, 6.30%, 6.25% and 6.25% and the same is currently appearing as a serious concern for regular income earners i.e. senior citizens. Though higher rates are provided by private banks, companies, and small finance banks, the deposit risk they bear again here is a concern of consideration. But considering the current scenario of falling FD rates, a better option is provided by the government is the Senior Citizen Savings Scheme (SCSS) which is one of the best among other post office small savings schemes. But what makes me only consider this scheme for you as a senior citizen. Let's find out.
What is the eligibility criteria?
An account under SCSS can be opened only by an individual citizen over 60 years. Either individually or jointly with your spouse, you can open an SCSS account. As eligibility criteria under this retirement scheme are determined in regard to only the primary account holder, a second holder (spouse) even below the age of 60 can only be considered to open a joint account. As the first holder, the spouse can also open an account under SCSS if the standards are met. At any post office or the approved branches of permitted banks, you can open an SCSS account. Even before the age of 60, but not before the age of 55, those who have obtained voluntary retirement or who have retired on superannuation can open this account. In both situations, the account must be activated within one month of the date from which the retirement payouts are received. In the case of former defence service staff, the same could be opened at the age of 50 years. Deposits rendered by individuals under 60 years of age are capped at Rs 15 lakhs.
Nomination facility and deposit limit
For your SCSS account, you are entitled to add a nominee on your behalf. The nomination can be rendered initially or may be made, cancelled or changed at any time during your lifespan. Under SCSS, you can open multiple accounts as well, but all accounts are required to have deposits of a limit of Rs 15 lakh, placed together at any particular time. With respect only to the first holder, the limit of Rs 15 lakh is determined.
Premature withdrawal option
The overall tenure of the SCSS is five years, and can only be extended once over a period for a block of 3 years respectively. You are entitled to withdraw the money early after opening the account, but not until the expiration of one year. A penalty of 1.5 per cent of the deposit amount is deducted if the account is closed before the second year. The applicable penalty is 1 per cent for accounts closed after two years but before 5 years from the date of issuance of the account.
Under this scheme, the interest rate is declared in advance by the government for each quarter. The rate available for the entire term shall be the rate existing at the time the deposits are made and shall not be liable to adjustment for the deposit tenure. The interest rate announced for the quarter of March-21 is 7.4 per cent per annum. Without any cumulative option, the interest is due quarterly under SCSS. The first interest shall be paid from the date of making the deposit until the end of the quarter and for each quarter thereafter.
You can claim a deduction under Section 80C up to Rs 1.50 lakh per year against the contributions made towards SCSS. This clause is relevant as other strategies under Section 80C for seeking tax benefits, such as EPF, bank FDs and so on. The interest earned under SCSS is subject to taxation. If the amount of interest crosses Rs 50,000 in a year for senior citizen account holders, the bank will subtract TDS @ 10 per cent. The maximum cap for TDS is Rs 40,000 per annum for others. If interest crosses the TDS limit for the entire year, you can submit Form 15H/15G to the bank or post office in order to avoid TDS. You are allowed to claim an exemption of up to Rs 50,000 for interest received under this scheme, along with other interest gained by you from banks and post offices under Section 80 TTB, if you are a senior citizen and have made deposits under this scheme.
Withdrawal option in case of your death
In the case of the death of a single holder, if a nomination is made under this scheme, the deposit amount including interest is paid to the nominee. After pursuing a painful process, the legitimate hairs can claim it in case nomination is not made by the primary holder. Thus, at the time of making the deposits, it is important to have the nominee added. The spouse gains the ability to proceed with the scheme in the case of joint accounts. If the spouse does not wish to proceed, the capital can be withdrawn respectively. The spouse has to withdraw the additional deposit in case the cumulative cross the threshold of Rs 15 lakhs.
How to open a senior citizen savings scheme account?
An SCSS account can be opened by filling the application form and depositing a minimum of Rs 1,000 or any in multiples of Rs 1,000, not surpassing Rs 15 lakh. To know more please click here.
SCSS Vs Bank FD Rates
Because you receive better returns on deposits under SCSS than those commonly available investment vehicles such as bank FDs, senior citizens who need risk-free returns on their investments should consider SCSS first. Below is an interest rate comparison of SCSS and bank FDs.
|Senior Citizen Savings Scheme||5 years||7.40%|
|SBI Special FD Scheme||5 Years to 10 years||6.20%|
|HDFC Bank Senior Citizen Care FD||5 years and 1 day to 10 years||6.25%|
|ICICI Bank Golden Years FD||5 years and 1 day to 10 years||6.30%|
|Bank of Baroda Senior Citizens Saving Scheme||5 Years to 10 years||6.25%|