The Senior Citizen Savings Scheme (SCSS) was initiated by the Govt. of India far back in 2004, and has been a great investment option for Senior Citizens ever since. Senior citizens should not take the risk of investing in Equity since the time horizon for investment comes down substantially after age 60. What if the money is required for some medical reason, or for some other emergency? What if the principal itself is lost? How can the money that is already there today be conserved and grown without much of risk and with good liquidity? Such questions are not fictitious – at 60, they are real and daunting.
The Senior Citizen Savings Scheme (SCSS) provides a 100% safe, zero-risk option for senior citizens of India, with good quarterly income through simple interest. Although the interest received is taxable as income (like pension) it comes with income tax benefits under Section 80C.
The Senior Citizen Savings Scheme (SCSS) works like an immediate annuity plan with quarterly income and return of investment after 5 years. Here is everything you would want to know about the Senior Citizen Savings Scheme (SCSS).
| Heading | Description |
|---|---|
| Eligibility | Any Indian citizen who has crossed 60 years of age. Those retired in a Voluntary Retirement Scheme (VRS) or a Special VRS Scheme – can enroll into Senior Citizen Savings Scheme within 3 months from date of retirement and should be aged between 55 and 60 (both completed years). Defense personnel (except Civilian Defense employees) – no age restrictions. NRIs – Non Resident Indians are not eligible for SCSS. HUFs – Hindu Undivided Family is not eligible for SCSS. The Senior Citizen Savings Scheme (SCSS) account can be opened individually or as a joint account with spouse. |
| Investment Limit | Minimum – Rs. 1,000. Maximum – Rs. 15 lakhs or Retirement Benefits, whichever is lower. You can operate multiple accounts, but the sum of deposits should be within this prescribed limit. |
| Maturity | After 5 years. You can extend it further by 3 years but submitting Form B. |
| Interest | Interest rate for Senior Citizen Savings Scheme (SCSS) is announced by RBI every year (along with the PPF interest rate). For 2014-2015, it is 9.20%. This is simple interest, i.e. no further interest is payable on the interest earned. Interest is paid every quarter on 31st Mar, 30th Jun, 30th Sep and 31st Dec of every eligible year, and at the time of maturity on a pro-rata basis for the remaining days. Interest is automatically credited to savings account provided both the accounts are held in the same post office. Else you need to claim it. Remember to claim it on time since no further interest is payable on earned interest (because there is no compounding feature). |
| Tax Benefits on Deposit | The deposit amount in a Senior Citizen Savings Scheme (SCSS) account is allowed for rebate under Section 80C. |
| Tax Benefits on Interest Earned | None. Like pension, interest is treated as income in the year that it is earned. |
| Nomination | You can nominate one or more persons by submitting a nomination form any time after opening the account. Nomination can also be changed at any time. |
| Account Opening | The Senior Citizen Savings Scheme (SCSS) account can be opened at any Post Office, or a specified branch of State Bank of India. A pass-book is issued at the time of account opening, along with the counterfoil of the pay-in slip of the deposit. |
| Premature Withdrawal | SCSS does not allow premature partial withdrawal. |
| Premature Closure | This is allowed only after 1 complete year. After 1 year and before 2 years, 1.5% interest is deducted and the rest is paid out. After 2 years and before Maturity, 1% interest is deducted. After 3 years, premature closure is allowed without any deduction of interest. Use Form E as application for premature account closure. |
| On Death of the Deposit Holder | There is no deduction done in case of premature closure on death of the deposit holder. In such a case, the Joint deposit holder or nominee (or legal heir in case nominee has also expired or nomination was not made) needs to submit Form F (in case of legal heir submit affidavit, disclaimer on affidavit, indemnity bond, death certificate of the depositor on stamped paper) to apply for premature account closure. |
| Account Transfer | When you move location, you can also transfer the account. There is a transfer fee of Rs. 5 for every Rs. 1 lakh, in case the deposit is more than Rs. 1 lakh. |
| Delay in Claiming Maturity Amount | In case a depositor does not close the account on maturity and also does not extend the account, the account will be treated as matured. Interest at the rate as applicable to the deposits under the Post office Savings Accounts from time to time will be payable on such matured deposits up to the end of the month before the final closure month. |
With 9.20% simple interest paid quarterly, the Senior Citizen Savings Scheme (SCSS) is quite attractive. Without unnecessary risk, it gives you a guaranteed income. In fact, you could look at using the interest income as investment into a Post-office Recurring Deposit (RD), thereby making best use of the higher interest rate as well as the compounding benefit of the RD.
To connect with one of our Trained & Certified Insurance Counselors, please call our Customer Care No. +91 1800 2121 344
Kedar, you can view our article of yesterday linked below for answers to your queries.
https://www.mintwise.com/blog/lic-varishta-pension-bima-yojana-2014-15/
Please do not try to compare VPBY with SCSS and FD – they have very different objectives and you need to get the perspective right to realize which one suits you.
Kedar, you can view our article of yesterday linked below for answers to your queries.
https://www.mintwise.com/blog/lic-varishta-pension-bima-yojana-2014-15/
Please do not try to compare VPBY with SCSS and FD – they have very different objectives and you need to get the perspective right to realize which one suits you.
Thanks for again a nice article. Query- How does the SCSS compare with ref. to recently announced Varishtha Pension Bima Yojana- which Modi Government seems to have revived upto August 2015 ?
1. Can you explain the returns in both cases ,with help of example ?
2. Your recommendation , on which one is more suitable for senior citizens ?
3. How does it compare with 5 year Tax saving FD , with SBI ?
Thanks in advance..
Prashanth, we appreciate your interest in ensuring the financial well being of your parent.
The biggest challenge is the lack of time – just 6 years for retirement. It is a very short time to create a good corpus through higher returns from equity or pension plans/MF with an equity component in them, which needs at least 10-12 years.
After one retires, what one needs is (a) steady guaranteed income and (b) the capital to optimally deliver highest possible return with almost zero risk. Some gutsy people continue to invest in equity even at age 70, but we would not recommend such a thing.
Because time is short, we suggest you break it up into 2 parts.
(1) Take a limited risk with 15-20% of money in large-cap equity to create a good corpus in, say, 12 years. After 12 years, use that (as well as what is generated from point 2 below) to buy an annuity or invest it in a guaranteed income plan (Post Office or any other) with capital guarantee or an SCSS every 4-5 years. Immediate Annuity (from a life insurance company) is also an option but don’t put all the money into it since once taken it is for lifetime and no change is possible.
(2) The remaining 80% may be invested right away into a secure guaranteed product (FD, Bonds, etc.) for 6 years, that continue to yield returns in a limited way. This will help you generate the corpus which will give benefit from after 6 years.
Depending on your appetite for risk, the 20% and 80% can vary.
Hope this helps.
Prashanth, we appreciate your interest in ensuring the financial well being of your parent.
The biggest challenge is the lack of time – just 6 years for retirement. It is a very short time to create a good corpus through higher returns from equity or pension plans/MF with an equity component in them, which needs at least 10-12 years.
After one retires, what one needs is (a) steady guaranteed income and (b) the capital to optimally deliver highest possible return with almost zero risk. Some gutsy people continue to invest in equity even at age 70, but we would not recommend such a thing.
Because time is short, we suggest you break it up into 2 parts.
(1) Take a limited risk with 15-20% of money in large-cap equity to create a good corpus in, say, 12 years. After 12 years, use that (as well as what is generated from point 2 below) to buy an annuity or invest it in a guaranteed income plan (Post Office or any other) with capital guarantee or an SCSS every 4-5 years. Immediate Annuity (from a life insurance company) is also an option but don’t put all the money into it since once taken it is for lifetime and no change is possible.
(2) The remaining 80% may be invested right away into a secure guaranteed product (FD, Bonds, etc.) for 6 years, that continue to yield returns in a limited way. This will help you generate the corpus which will give benefit from after 6 years.
Depending on your appetite for risk, the 20% and 80% can vary.
Hope this helps.
Thank you for the above info..
My question is
1) My father is retiring from a job after 6 years. Assuming that he would get 15 Lakhs from EPF and a pension from state govt around 5000 p.m. Please suggest me any Pension plans or any other options so that he could receive atleast 35000p.m.
(2) Also putting all the money after retirement in Annuity is the good option ? NPS is a good option for him? Please guide.
Thank you for all your efforts
Thank you for the above info..
My question is
1) My father is retiring from a job after 6 years. Assuming that he would get 15 Lakhs from EPF and a pension from state govt around 5000 p.m. Please suggest me any Pension plans or any other options so that he could receive atleast 35000p.m.
(2) Also putting all the money after retirement in Annuity is the good option ? NPS is a good option for him? Please guide.
Thank you for all your efforts