All retired seniors struggle to meet both goals due to the double whammy of constant inflation accompanied by falling interest rates all around. Interest rates offered by banks on term deposits have fallen to around 6%. Although private banks and corporations offer higher rates, they cannot risk their limited resources. In such an environment, the State-guaranteed Seniors Savings Plan (SCSS) offers a better alternative.
Let’s discuss the important features of SCSS.
Who can deposit money in SCSS
Only an individual resident under FEMA (Foreign Exchange Management Act) over the age of 60 can open an account under SCSS. The account under this plan can be either a single account or a joint account with your spouse only. As the eligibility for this scheme is assessed against the sole first holder, your spouse even under the age of 60 can become a second holder. Your spouse can also open their account under SCSS as the first holder if the conditions are met.
Although non-residents are not allowed to open an SCSS account, they can continue the account after becoming non-residents. However, they are not allowed to renew it beyond the initial five-year term. You can open a SCSS account at any post office or at designated branches of authorized banks. A HUF cannot open an account under SCSS.
For those who have voluntarily retired or who have retired with a retirement pension, can open this account even before reaching the age of 60, but not before reaching the age of 55 . In such cases, the account must be opened within one month from the date of receipt of pension benefits. In the case of retired defense service personnel, it can be opened even after 50 years. Deposits made by those under 60 will be limited to retirement benefits but maximum up to 15 lakh.
Appointment and account closure on the death of the account holder
You are authorized to make nominations in favor of one or more persons. The appointment may be made initially or may be made, canceled or changed at any time during the life of an Account Holder.
Money deposit limit under SCSS
You can open one or more accounts under SCSS, but you are allowed to have deposits of a maximum of Rs 15 lakh on all accounts, joined together at any given time. Thus, we can deposit Rs 15 lakh at once or spread over a period of time. The ceiling of Rs 15 lakh is calculated with reference to the first holder only.
Seniority and premature withdrawal
The SCSS has an initial term of five years, which can only be extended once for a period of three years. During the term of the account, you are allowed to withdraw the money prematurely, but not before the end of a year, but with a certain penalty. If the account is closed before the second year, a penalty of 1.5% of the deposit amount is recovered. For accounts closed after two years, the applicable penalty is 1%.
As you cannot withdraw money deposited under this program in the first year, please properly assess your fund requirements for one year before committing your funds to this program.
Interest on deposits under this scheme is announced by the government for each quarter in advance. The rate applicable for the entire period of occupancy is the rate in effect at the time of making the deposits and will not be subject to change during the first five years. In the event of an extension, the applicable rate will be that then in effect. The interest rate notified for the quarter beginning July 1, 2020 is 7.4%. Interest under the SCSS is payable quarterly. There is no cumulative option under SCSS. The first interest is paid from the date of deposit until the end of the quarter and thereafter for each quarter.
Tax provisions applicable to deposits and interest
Deposits made under SCSS are eligible for a deduction under Section 80C up to Rs 1.50 lakh each year along with other qualifying items. This provision is important when other means of claiming tax deductions under Article 80C such as life insurance premium, payment to pension scheme, contribution to EPF account, ULIP, etc. can no longer be used by the elderly. So instead of putting the full amount of Rs 15 lakh in a single year, you can spread the same over the years to maximize the benefits under section 80C.
Interest earned under the SCSS is fully taxable. The bank will deduct 10% tax if the amount of interest exceeds Rs 50,000 per year for senior account holders. For others, the threshold limit for TDS is Rs 40,000 per year. If the interest for the whole year exceeds the TDS threshold, you can submit the 15H form if you are a senior or 15G otherwise to receive interest without withholding tax if you are eligible to submit such forms.
If you are a senior and have made deposits under this scheme, you are entitled to claim a deduction up to Rs 50,000 for interest earned under this scheme as well as other interest. that you have earned from banks and post offices under Article 80 TTB.
Who can claim the money on the death of the account holder?
In the event of the death of a single holder, the balance due under the plan with interest becomes payable to the nominee (s) in the event of appointment. In the event that the appointment is not made, the legal hair can claim it after going through a tedious procedure. Thus, it is advisable to have the appointment made when making the deposits.
In the event of joint accounts, the spouse has the option of continuing the scheme. In the event that the spouse does not wish to continue, the money can be withdrawn. In case the spouse already has deposits under this scheme, the total deposits under this scheme are limited to Rs 15 lakh. In the event that the total exceeds the threshold, the spouse must withdraw the excess deposit.
Since deposits under this program earn you higher returns than those typically available under other comparable safe investments, it should be the first choice for seniors who want a risk-free return on their investments.
(The writer is a tax and investment expert and can be contacted at email@example.com)