It is estimated that India has over 113 million senior citizens. In this article we have highlighted about the Investment possibilities for Senior Citizens in India. Senior citizen is individual over the age of 60. This accounts to over 8.5% of Indian population.
What is a Senior Citizen Savings Scheme (SCSS) and How does it work?
A Senior Citizens’ Saving Scheme account is a retirement-benefits account. Indian senior citizens who invest a lump sum in the plan, either individually or jointly, can take advantage of its features. In addition to income tax advantages, it also accounts for income post-retirement.
Eligibility criteria for Senior Citizen Savings Scheme in India
The following is a list of the SCSS’s eligibility requirements:
- The applicant should be at least 60 years or older at the time of opening an SCSS account.
- Superannuation retirees who have reached the age of 55 but are under the age of 60 are eligible to open a SCSS account.
- People who retired prior to the commencement of the SCSS guidelines and have reached the age of 55 are eligible.
- Hindu Undivided families and NRIs cannot open an SCSS account.
How does the Senior citizen savings scheme work?
- Depositing a minimum of Rs. 1,000 up to Rs. 15 lakh in a single transaction will open an SCSS account.
- Any extra amount must be returned immediately to the account holder if the deposit exceeds the threshold amount.
- The interest will be paid every quarter and can be received in a savings account in the same bank/post office using ECS.
- The account can be prematurely closed anytime after opening. Account closure charges are applicable if closed within a year of opening.
- After an initial maturity period of five years, the account can be extended for another three years. Application for extension should be applied within a year before the maturity.
Which saving scheme is best for senior citizens?
For the reasons listed below, the Senior Citizens Savings Scheme (SCSS) is considered the best savings programme for senior citizens.
- Investment is risk-free as it is backed by the Government of India and gives its investors secure and dependable income through interest payments.
- The interest payments are given out every quarter. From October to December 2022, the interest rate is 7.60%.
- The scheme has a minimum investment requirement of INR 1,000 and a maximum investment limit of INR 15 lakhs.
- It has a five-year lock-in term; however, early closure is permitted for a fee after the first year.
- Extending the plan for three more years after the initial five years is possible.
- Under Section 80C of the Income Tax Act of 1961, investments in SCSS are eligible for tax deductions. The investors can submit their income tax returns and obtain a tax benefit of INR 1,50,000.
What happens to SCSS after maturity?
A Senior Citizen Savings Scheme (SCSS) account has a five-year term; upon maturity, the invested money is returned to the investor.
The depositor can extend the maturity by three years even though they have the option of opening a new SCSS account following the maturity.
An account with an extension is permitted a total of eight years of tenure. After eight years, the account will be promptly closed.
Is Senior Citizen Savings Scheme better than FD?
SCSS is considered better than FDs for following reasons:
SCSS has two primary advantages over FDs. The first is the interest rate offered by SCSS is higher than any other traditional saving scheme, including FDs. SCSS provides a 7.6% interest rate, which is higher than the bank FDs have to offer.
Secondly, SCSS acts as a regular source of income post-retirement for the senior citizen, as the interest payments are made every quarter. The same is not the case with an FD, where the maturity amount is received once the tenure ends.
How many times can SCSS be renewed?
An SCSS account has a tenure of five years. It can be renewed or extended only once for three more years after maturity.
Is SCSS interest tax free?
According to the tax bracket that applies to the individual, interest on SCSS is taxed. Tax Deducted at Source (TDS) is applied to the interest earned if the interest earned for a fiscal year exceeds Rs. 50,000. From AY 2020–21 forward, the government introduced this cap on TDS deductions on SCSS investments.
Does SCSS have a lock in period?
Despite the five-year lock-in, the SCSS has high liquidity as withdrawals are permitted but come with restrictions and fines.
- If an account is closed within one year of opening, no interest is paid, and any paid interest is deducted from the principal amount.
- If an exit is made between the first and second year, 1.5% of the deposit is taken away as a penalty.
- If an exit is made between the second and the fifth year then 1% of the deposit is taken away as a penalty.
Remember, no penalty fees are associated with closing an extended account after one year from the extension.
Can a housewife open SCSS?
Yes, a housewife can register for a senior citizen saving scheme account and invest up to Rs 15 lakh. Joint ownership of this account is also permitted with a spouse.
A jointly owned account does not prevent the first holder’s spouse from opening a separate SCSS account because the entire investment in the account is attributed to the first holder.
So a homemaker and her spouse can invest up to Rs 30 lakh in two jointly-held accounts.
Benefits and risks of SCSS?
The five-year Senior Citizen Saving Scheme (SCSS) offers its investors the following advantages:
- Since it is a government of India initiative, it is a safe investment option.
- One can open an SCSS account in India at any authorised bank or post office.
- Tax Benefit: Under section 80C, the amount invested is eligible for a tax benefit of up to Rs. 1.5 lakh.
- Extension possible: One can prolong the duration of investments by an additional three years after the initial five-year lock-in.
- Joint holding permissible: Both spouses can open individual and/or joint accounts with a maximum investment of Rs. 15 lakh each.
- Nominees: A Senior Citizen Savings Scheme account may have one or more nominees.
- Lump sum Amount investment: This provides a safe option for you to invest the money you received as a lump sum upon retiring.
Risks
- Perhaps the only risk associated with an SCSS account is that a penalty of 1 or 1.5% is levied on premature withdrawal.
A Senior Citizen Savings Scheme is ideal if one has some additional lump sum fund to invest and who does not wish to take much risk. The high returns offered, tax benefits and an investment backed by the government of India makes it a more exciting option for senior citizens.