Senior Citizen Savings Scheme (SCSS) is a popular investment plan as it is a debt instrument with zero risk on invested capital. High and assured returns along with the tax benefit make most individuals open an SCSS account.
In Budget 2023, the Indian government has raised the upper investment cap for the SCSS from ₹15 lakh to ₹30 lakh. SCSS is one of the lucrative investments for senior citizens offering an 8% rate – applicable to deposits made in the quarter Jan-Mar 2023. The minimum amount is ₹1,000 to open an SCSS account.
How a Change in Interest Rate Impact SCSS Deposits
- The interest rate on the SCSS is subject to change. Based on the prevailing economic scenario, authorities in the Indian financial market review the interest rate of varied schemes.
- The Reserve Bank of India (RBI) revises the interest rates for the SCSS interest rate quarterly. The SCSS interest rate for Q1, Q2, Q3, and Q4 in each financial year differs.
- For the quarter ending March 31, 2023, the government has raised the interest rate for the SCSS to 8% from 7.6% in the October-December quarter of 2022 led by the recent hike in the repo rate. The SCSS interest rates will be revised by the end of March 2023. With another hike of 25 basis points in the repo rate, market experts expect a rise in small savings schemes’ interest rates in Q1 (April-June 2023).
- Investors should note that changes in interest rates after depositing the funds in an SCSS account do not impact the returns. However, it would be impacted when deposits are renewed as the scheme interest rate is reviewed on a quarterly basis.
Salient Features and Key Benefits of SCSS
- The SCSS is a government-backed savings scheme for senior citizens aged 60+ years.
- Retired Civilians aged 55-60 can invest in an SCSS account within one month of retirement benefit receipt.
- Defence retirees aged 50-60 years can invest in SCSS within one month of receiving retirement benefits.
- An SCSS account can be a joint investment with the spouse only. The total amount deposited in a joint account is attributable to the first account holder.
- Interest Credit
Interest is applicable from the date of deposit to the end of a quarter, i.e. 30th June/30th September/31st December/31st March/ in a financial year. In case, the investors do not claim the interest payable in a quarter, the bank does not consider this interest amount for additional interest. An SCSS account can be opened at any post office or any authorised bank in India. The account holder can withdraw the interest amount through auto credit into a senior citizen savings account at the same bank.
- Tax Savings
The SCSS offers the security of guaranteed returns and stable income for the entire investment tenure. Also, there are tax benefits. Investors are eligible for the income tax deduction of up to Rs.1.5 lakh under Section 80C, Income Tax Act, 1961. They must submit form 15G/15H to avail of a tax deduction if the total interest earned on SCSS accounts is less than Rs.50,000 in a financial year.
- Premature Closure
The maturity period is five years but can be increased for three more years. The deposited amount during the tenure is paid back to the account holder on maturity. Fill out the application for opening bank account online to receive the amount. Account holders are allowed to close the SCSS account prematurely.
- If funds are withdrawn before completing one year, there will be no interest payment on the principal amount.
- If the account is closed after completing one year but before two years, there will be a penalty of 1.5 % on the principal amount.
- If the account is closed after completing two years but before five years, 1% of the principal amount will be deducted as a penalty.
- Funds from an account with extended maturity can be withdrawn after one year without deduction.
Interest rates for the SCSS and other small savings schemes are set by the Government at the start of each quarter based on the prevailing market conditions. SCSS interest rates are continuing to be attractive in the present rising interest rate scenario. Though the rate hikes are slight, they can offer incentives to senior citizens. Senior citizens can enjoy income tax benefits and high returns on their SCSS investments.
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Approach an authorised bank or any post office across India to open an SCSS account. Customers can access an application for opening a bank account online and assure timely interest credit.