Senior citizens are very keen on this scheme due to the convenience of risk-free investment, high interest rate and quarterly payment of interest. But there are many questions regarding this scheme. Today we are trying to answer them.
In this year’s budget, the Central Government announced to increase the investment limit for senior citizens i.e. Senior Citizen Savings Scheme (SCSS) from 15 lakhs to 30 lakhs. Means from April 1, 2023, senior citizens can invest a maximum of Rs 30 lakh in this scheme.
At the same time, for the current April-June quarter, the interest rate on this scheme was increased by 0.2 percent. Due to which now the interest on this scheme has increased from 8 percent to 8.2 percent. Of all the small savings schemes of the government, the maximum interest is currently on SCSS.
The scheme has again started gaining popularity among senior citizens amid investment limit and interest hike since last three quarters. From April 2020 to September 2022, the interest on this scheme was stable at 7.4 percent, while earlier from April 2019 to March 2020, the government was paying 8.6 percent interest on this scheme. Because of which senior citizens had become more or less indifferent about investing in this scheme.
Last year, the interest rate was increased from 7.4 per cent to 7.6 per cent for the October-December quarter. Which was increased to 8 percent for the next quarter i.e. January-March 2023 and then to 8.2 percent for the current April-June quarter. The government determines the interest on small savings schemes including SCSS every quarter.
Senior citizens are very keen on this scheme due to the convenience of risk-free investment, high interest rate and quarterly payment of interest. But there are many questions regarding this scheme. Today we are trying to answer them.
Who can invest in this scheme?
This scheme is only for senior citizens. In this scheme, a person of 60 years or more can open an individual or joint account. Voluntary retirement scheme (VRS) or retirement between 55 to 60 years and retired defense personnel above 50 years of age can also invest in it. But these people will have to invest in this scheme within one month of getting the retirement benefit. There is no restriction regarding the age of joint holder in joint account.
How and how much to invest?
Only one-time investment can be made in this account. This means that at the time you invest in this scheme, the interest fixed by the government at that time, you will get interest at the same rate till the maturity period. Whether the government increases or decreases the interest rate further, there will be no difference to your interest.
A maximum of Rs 30 lakh and a minimum of Rs 1,000 can be invested in this scheme. The maturity period of this scheme is 5 years. It can be further extended for another 3 years. This account can be opened in Post Office, Public Sector Banks (PSB) and selected private sector banks. But it is also necessary to have your Savings Account in that branch. The SCSS account is linked to this same savings account of yours.
How to get return?
Assuming that the money is required regularly by the senior citizen, it also provides regular returns (interest) which gets credited to the savings account linked to this account every three months. Interest is paid to the savings account on the 1st of every April, July, October and January.
Suppose you have deposited Rs 30 lakh in lump sum, then according to the current interest rate (8.2 percent), you will get Rs 2,46,000 in one financial year i.e. Rs 61,500 interest every quarter, which will be credited to your savings account.
Can I withdraw the deposit in between?
If you withdraw the deposit amount within one year of opening the account, then you will not get any interest on this deposit amount. If interest is received, then the rest amount will be returned to you after deducting it. After one year but within two years, a penalty of 1.5 per cent will have to be paid on the deposited amount in lieu of closing the account and withdrawing the deposited amount.
After the completion of two years but before 5 years, one percent penalty will have to be paid on the deposited amount in lieu of withdrawing the deposited amount. If after 5 years the account is in the extended period of 3 years, then in such a situation the deposit amount can be withdrawn by closing the account only after one year i.e. on completion of 6 years. Then no penalty will have to be paid.
Tax exemption
There is a provision of tax exemption under Section 80C of the Income Tax Act on the amount invested in this scheme, but this exemption will not be available in case of premature withdrawal.
For whom better, for whom not?
This scheme is better for those who do not have a regular source of income i.e. pension. Or even if it is, make sure that even after adding the interest received from this scheme, the tax liability on the annual income (even after taking advantage of section 80TTB) does not arise. Under Section 80TTB of the Income Tax Act, a person above 60 years of age i.e. Senior Citizen, gets tax-free interest of up to Rs 50,000 in a financial year on bank, co-operative society, post office savings account and term deposits. Is.
But if any senior citizens come under the purview of income tax, then this scheme is not good for them. The reason for this is that there is no tax exemption on the interest received in this scheme. Means the interest gets added to the annual income. As a result, interest will have to be taxed as per the tax slab and the returns will reduce. This scheme is not good for those who are in the upper tax slab i.e. 20 and 30 per cent.
How to improve returns?
There is a strong possibility that interest rates on other small savings schemes including SCSS may increase further for a couple of quarters. Therefore, instead of investing all at once, invest little by little. If you have an amount of Rs 30 lakh, then invest it in 2-3 times till the first quarter of the next financial year. The advantage of this will be that the benefit under Section 80C of the Income Tax Act will be available for this financial year and also for the next financial year (up to a maximum amount of Rs 1.5 lakh in a year).
Like Sukanya Samriddhi Yojana and PPF, this scheme does not get the benefit of compounding interest. If you leave the interest amount in the savings account, then you will get the interest that you get on the savings account. Therefore, it is advisable that as soon as the interest comes into your savings account, at least transfer it to a Recurring Deposit account (RD).
Those who are not senior citizens…
People who are not senior citizens can invest in this scheme in the name of their parents (if they fulfill the eligibility criteria for investing in the scheme). Such people will not get any tax benefit on this investment, but they will definitely be able to give the benefit of higher interest rate to their parents. A maximum of Rs 30-30 lakh i.e. Rs 60 lakh can be invested separately in the name of both the parents.
