Most senior citizens look for places to keep their savings safe and at the same time earn a moderate rate of return on them. Senior Citizens Savings Scheme (SCSS) offers the same with safety on investments, a regular stream of income along with tax-saving benefits. As compared to mutual funds, SCSS is a low-risk fixed return investment. SCSS investment is similar to bank fixed deposits, post office fixed deposits, and PMVVY.
Note that SCSS is a government-backed savings scheme, unlike bank FDs. Hence, it is more secure, as the investments are held with the government. The savings scheme comes with a tenure of 5 years which can be extended by 3 years.
The current interest rate offered by SCSS is 8.6 per cent per annum for the January to March 2020 period. The rate of interest is payable from 31st March, 30th June, 30th Sept, and 31st December. To open an SCSS account, a minimum deposit of Rs 1000 is needed, while the maximum amount should not exceed Rs 15 lakh.
In the SCSS account, individually or jointly, depositors can invest up to Rs 15 lakh. Note that the amount invested cannot exceed the money that has been received on retirement. Either of the lower, Rs 15 lakh or the amount received as a retirement benefit, can be invested in the SCSS account.
The interest earned from a senior citizens’ savings scheme is credited to the depositor's linked savings account held at the same post office. An SCSS account can be opened by depositors at all India Post Offices. Both in public and private sector banks an SCSS account can be opened, apart from regional post offices.
For depositors, investments up to Rs 1.5 lakh in a year in the senior citizen’s savings scheme are tax-deductible. However, the interest rate is taxable. Additionally, if the interest amount is more than Rs 50,000 per annum, TDS is deducted on interest.
Depositors can also make a premature withdrawal. However, penalties are applicable. The penalty of 1.5 per cent of the deposit amount is charged on premature exit if the scheme is exited by the depositor before completion of 2 years from the date of account opening. If one exits the scheme within 2 years or less than 5 years from the date of account opening, 1 per cent of the deposit amount is charged as penalty from the depositor.