Senior Citizen Saving Scheme (SCSS) [Post Office and SBI]
Our silver generation – the senior citizens! We couldn’t exist and survive without them. They worked through their entire lifetime, they ironed out bumps from paths, they even created new paths so that we, the younger generations can walk with ease. Indeed, their accomplishments are something we cannot and should not forget. Barring few idiots that don’t respect elders, the society as a whole remembers what our seniors have done for us and hence, the society offers a carefully curated investment options for senior citizens that have attractive benefits tailored towards the needs of the silver generation.
The question is, how do we define a senior citizen? A senior citizen is a person who has attained the age of 60 years. That’s all! There are no other special clauses to fulfill.
What really is Senior Citizen Saving Scheme?
This is an investment scheme which is designed for Indian citizens who are of age 60 or above. This scheme offers a long term investment option. Being sponsored by Government of India, it comes with a promise of keeping investments secured. Any senior citizen willing to opt for this scheme can approach either a post office or one of the banks approved by government to offer this scheme.
Typically, a Senior Citizen Scheme has a time frame of 5 years. However, once maturity is reached, an investor will have option to increase the investment period further by 3 years. The depositor needs to invest in the account in multiples of INR 1,000. There is a maximum investment cap for any given financial year. This maximum limit has been set at INR 15 lakhs.
Senior Citizen Saving Scheme is very safe and comes with a host of benefits designed only and only for senior citizens. Let us now take a look at the benefits of the scheme.
Benefits of Senior Citizen Saving Scheme
There are several schemes in India that are sponsored by the Indian government. The Senior Citizen Saving Scheme is one of those schemes and is one of the few schemes that offer their subscribers high interest rate. In this section we will find the various benefits of this scheme designed for senior citizens.
|Easy account opening||Opening a Senior Citizen Saving Scheme account is very simple. A person needs to walk up to a post office or a bank, ask for the application form, fill it up and submit along with necessary documents. That’s all!|
|Documents required||There is no complex documentation in this scheme. However, the investor needs to provide some ID that proves the age. Documents like PAN, Senior Citizen Card, Passport, Voter ID and Birth Certificate etc. can all work.|
|Security||Any government-sponsored scheme in India is highly secured. This scheme is government-sponsored and hence, the possibility of the scheme being closed or making financial losses is very low to nil.|
|Multiple accounts option||The Senior Citizen Saving Scheme comes with a unique feature wherein a single person is allowed to open multiple accounts. The person can even open joint account but the requirement is that the joint holder should be the person’s spouse.|
|High rate of interest||High interest is paid to SCSS. The rate of interest is an impressive 8.6%, making it a very lucrative investment option.|
|Tenure flexibility||While the usual tenure is only 5 years, a person can actually extend the tenure by another 3 years after the account matures. So, this scheme become both mid-term and long-term investment option.|
|Tax benefits||It allows to save income tax under section 80C.|
|Investment option||In this scheme, a person is allowed make only one investment. Since multiple investments in a single account are not allowed, Senior Citizen Saving Scheme allows investors to open multiple account. In a single account, the maximum deposit allowed is INR 15 lakhs while the minimum investment allowed is INR 1,000.|
|Premature withdrawal||This can be done. If the investor is under financial distress, he or she can access the funds of the SCSS account. However, in order to be able to do so, the account must have been maintained for at least 1 year. Still, if money is withdrawn after 1 year, 1.5% of account balance will be deducted as penalty and if money is withdrawn after the account has completed 2 years, 1% of the account balance will be deducted as penalty.|
Are there any eligibility conditions for the scheme?
Of course there are conditions that one needs to fulfill in order to be able to invest in this scheme. The eligibility conditions are mentioned below in bullet points:
- The investor has to be a senior citizen. That means, the investor should have attained the age of 60 years minimum to become eligible for this scheme.
- If a person is taking VRS and is less than 60 years old but at least 55 years old, he or she is also allowed to open an account under this scheme. There are however stringent conditions for this. The person needs to ensure that the account is opened within 30 days from which he or she receives the retirement benefits and also, he or she needs to ensure that the investment amount never exceeds the amount of retirement benefit received.
- If joint account is being opened, the primary investor needs to ensure that he or she fulfills at least one of the two aforementioned conditions of age restrictions. The age restrictions do not apply for the second or joint holder of the account. However, the second holder has to be the spouse of the primary investor.
13 Rules of Senior Citizen Savings Scheme
Remember these 13 rules by heart. Unless you remember these rules, you may run into unnecessary troubles. Staying abreast with conditions laid down by the government will ensure that you are making the most out of your investments. The rules are:
Rule 1:You must be a senior citizen. Under special circumstances, you can open an account if you are 55 years old.
Rule 2:You can open multiple accounts as a single holder or under joint holding. The joint holder needs to be your spouse.
Rule 3:You can deposit only once in one account. No more than INR 15 lakhs can be deposited in a single account. Deposits can be made only in multiples of INR 1,000.
Rule 4:For the first year, the interest earned by SCSS account will be paid on:
- March 31
- September 30
- December 31
Next year onwards, the interest earned by SCSS account will be pain of:
- March 31
- June 30
- September 30
- December 31
Rule 5: The maturity period for Senior Citizen Saving Scheme account is 5 years. However, once the account matures, the investor will have the ability to increase its tenure by a period of 3 years. For this, there is a specific application form. The investor needs to fill it up and submit the request.
Rule 6: If the first investment you are making is below INR 1 lakh, you need to provide cash. However, if the investment amount exceeds INR 1 lakh, you need to provided a cheque.
Rule 7: SCSS account can be transferred quickly from one post office to another or from one bank to another bank.
Rule 8: If you wish you can select nomination for the SCSS account. All you have to do is select a nominee while opening the account. In case you do not appoint a nominee while opening an account, you can do so later. However, for that to happen, you need to keep the account operational for a predefined amount of time.
Rule 9: Premature account closure for withdrawal of money is allowed. However, the account has to stay operational for at least 1 year for that to happen. Prior to that, premature closure is not an option. Penalties apply for premature closure with following rules:
- If the account is closed after completion of 1 year – 1.5% of account balance will be deducted as penalty.
- If the account is close after completion of 2 years – 1% of account balance will be deducted as penalty.
Rule 10: In joint accounts, only the primary holder is the investor. The secondary holder is only a stakeholder.
Rule 11: In case the interest earned by the account exceeds INR 10,000 in any given financial year, TDS is collected. This means, tax will be deducted at source.
Rule 12: The interest that gets accumulated in the SCSS account is paid out into the savings bank account which is maintained in the same post office or bank where the SCSS account exists. Interests are auto credited to the savings account.
Rule 13: The investments made in SCSS accounts are subject to tax benefits under Income Tax Act’s Section 80C. However, one needs to remember that the maximum amount till which tax benefits can be enjoyed is INR 1.5 lakhs. Any investment amount exceeding that amount will be taxed. In case of multiple accounts the total investment amount may exceed INR 1.5 lakhs. In that case the tax benefit will be given only to INR 1.5 lakhs, the rest will be taxed.
What Is The Interest Rate Provided Under SCSS?
The interest rate offered by Senior Citizen Saving Scheme is not fixed. It keeps changing for every fiscal year. For the fiscal year 2016-2017, the interest rate is at 8.6%. This interest rate is determined by government and is announced at the beginning of every fiscal year.
Though there are options like Mutual Funds and high risk equity investments where interest earned can be way higher, SCSS is a better option because it comes with unmatched security. Also the interest offered is not too low and hence, significant earnings can be made for higher investment amounts.
How Is Interest Calculated In SCSS?
Well, while learning about the benefits of the SCSS is important and that is what everyone focuses on, it is really important to find out the amount of money you can earn against your investments. This will help you know about the income you can expect and hence, plan out your expenses in advance. Of course, you cannot plan for unforeseen expenses but the ones that are regular requirements, you can always calculate in advance. In this section, we will try to take a look at how interests are calculated in case of Senior Citizen Saving Scheme. Follow closely…
For fiscal year 2016-2017, the interest rate is at 8.6%. This interest is yearly interest and not a monthly interest. Since, interest is paid out every quarter, the interest will be calculated accordingly. For this we need to calculate the interest for every quarter. Let us find out how it happens:
Yearly interest = 8.6%
Quarterly interest = (8.6/4)% = 2.175%
So, if you invest INR 100, the amount of interest you earn in a single quarter is INR 2.175.
If you invest INR 1 lakh, the amount of interest you earn in a single quarter is INR (2.175 x 1000) = INR 2175.
In case you need a formula, here is what you need to use:
Earnings = (P x r)/400
Here P is principal, r is interest rate and 4 represents 4 quarters of the year.
What Are The Tax Benefits of Senior Citizen Saving Scheme?
There are two components that you need to understand.
- Income Tax Under Section 80C.
TDS: If the interest that you are earning in one year 1 year exceeds INR 10,000 TDS payment becomes obligatory. However, if the interest earning is less than INR 10,000 in a given year, TDS payments are not required.
Income Tax Under Section 80C: For investments up to INR 1.5 lakhs, the investments will not be considered as income and hence not taxed. In case, investments above the INR 1.5 lakhs, the amount exceeding INR 1.5 lakhs will be taxed as per normal income slab for taxation.
Senior Citizen Saving Scheme in Post Office
Government of India has authorized all Post Offices in India to sell Senior Citizen Saving Scheme. There is one vital requirement. Anyone opting for this scheme through a post office needs to open a savings account with post office. The reason is simple, the post office needs to deposit the interest earnings directly to the savings account and they will not do so to a savings account in a banks. So, if you are opting for post office, consider opening a savings account as well.
Post office is often the more preferred option because of several reasons. For example, post is considered as far more approachable compared to banks, especially among those people who do not live in urban areas. Also, post offices do not have initial investment charges like account opening charges, service charges etc. It is also considered that post offices are far more friendly compared to banks because there are limited numbers of people and a less complex operational machinery sits between the government schemes and the targeted beneficiaries.
However, there are several shortcomings as well. For example, post offices do not allow online operations. They do not offer a wide array of financial products, thereby crippling the investment choices. As a matter of fact, banks often tend offer non-government investment options for senior citizens and many nationalized banks provide returns at par with government schemes. Sometimes, bank operated schemes for senior citizens can be far more beneficial compared to what the government offers.
Which Banks (SBI) are Allowed to Offer Senior Citizen Saving Scheme?
As of 2016-2017, there are a total of 25 authorized banks that off the Senior Citizen Saving Scheme. Of these 25 banks, only one bank is a private bank and the remaining banks are nationalized banks. The list of these banks is provide below:
|Nationalized Banks Offering Senior Citizen Saving Scheme|
|State Bank of India|
|State Bank of Patiala|
|State Bank of Bikaner and Jaipur|
|State Bank of Travancore|
|State Bank of Mysore|
|State Bank of Hyderabad|
|Bank of India|
|Bank of Baroda|
|Central Bank of India|
|Union Bank of India|
|Punjab National Bank|
|Indian Overseas Bank|
|United Bank of India|
|Bank of Maharashtra|
|Private Sector Bank Offering Senior Citizen Saving Scheme|
Senior Citizen Saving Scheme FAQ
Which is better, a bank or a post office?
Both are equally good. You just need to remember that neither the banks and nor the post offices have any control over the Senior Citizen Saving Scheme. It is a government operated scheme and the selected banks and the post offices are nothing more than mediums for distributing the scheme. So, banks and post offices need to follow every single instruction issued by Government of India. They need to offer the exact same interest rate and the exact same operational methods and benefits. There is no way they can alter it. Hence, both are equally good.
However, banks do offer online account operation features, making it simpler for people to operate the financial operations quickly from the comfort of home. Thus, if you are willing to use online features, banks are better than post offices. However, if you are more in preference of physically visiting the place, you can always do so. In such a scenario, post offices and banks have practically no differences.
Of course, banks also have phone banking facility, account statement delivery through emails or post facility etc. which the post office will not provide. In case you are looking for these options too, you can always go for banks. Also, banks are far more widespread than post offices, making them easily accessible.
What will happen if the account owner dies?
In case of joint account, if the primary account holder dies, the joint holder will get the ownership.
In case of single ownership, if the account holder dies, the account will me marked for closure. The nominee will then be have to submit Form F. There will be Annexure II and Annexure III in the form. These Annexures will have to be attested by Oath Commissioner or public notary.
Is it possible for change nominee or cancel a nominee?
Yes it is possible. This can be done by using Form C. This form can be accessed from the bank or the post office from where the account has been opened. This application has to filled in properly and submitted to the bank or post office.
In case of joint account, what if the second partner is not a senior citizen?
That is not at all problem. They second partner will have no age restriction as the primary investor. However, the second partner will have to be the primary investor’s spouse. It is absolutely necessary that the primary holder of the account or the primary investor is 60 years old or elder. Under certain circumstances, the primary investor can be 55 years old (explanation has been given above).
What do we mean by retirement benefit?
The case of retirement benefit comes only if a person is 55 years old and takes a VRS or gets retired on superannuation. In that case the person becomes eligible to get certain payments like a bulk cash amount, gratuity, PF, encashed leaves etc. These are together known as retirement benefits.
If the person decides to take VRS before he or she attains the age of 60, he or she will also become eligible for Senior Citizen Saving Scheme. However, there is one stringent condition. This person cannot deposit any amount which exceeds the total amount of retirement benefits he or she receives from his office. Also, he or she has to keep in mind that Senior Citizen Saving Scheme account does not allow an investment that exceeds INR 15 lakhs.
Conclusion: If we try to compare between different government schemes, this saving scheme for senior citizens is one of the best in business. Since this scheme is a government-sponsored scheme it will not be pulled out of market and the chances of entire money being lost is almost nill. Hence, on in worst case scenario of complete economic meltdown, will a person lose the entire investment. Otherwise, the chances of losing SCSS investments is slim to none because government won’t let that happen. So, as long as you are okay with the interest offered and willing to work within the defined rules, SCSS is something you should never overlook.
Interest Rate has been set to 8.1% for 1st Quarter of FY 2018-19