Before we discuss the Senior Citizens Savings Scheme (SCSS) I am tempted to ask this question. Do senior citizens need a separate type of investment option? If yes, why?
The obvious answer to this would (generally) be absence or reduction of flow of income after retirement. After a certain age due to retirement or diminished physical strength, the regular flow of income is likely to stop. In case of self employed or businesses the income may reduce; so senior citizens are likely to be dependent on their investments or savings.
An important feature that senior citizens want in their investment is minimal or no risks as they have limited resources and would not want to squander those away. Thus they want a risk free option that provides them a regular flow of income.
Senior Citizens Savings Scheme is one such option and we will discuss its features and utility in this post. Being a scheme run and promoted by the Government of India, it is a fairly secure option with no risk of interest or capital erosion.
Features of the Senior Citizens Savings Scheme
- The scheme as is clear from the name is for senior citizens; people who are 60 or above can apply for this scheme.
- If somebody opts for Voluntary Retirement Scheme then he/she can apply at the age of 55 as long as they apply within 3 months of the retirement.
- No age limit for Defense personnel.
- Account can be in joint or single name; nomination facility available.
- The maximum investment limit is Rs.15,00,000 and the deposits can be in multiples of 1000’s.
- Interest is paid @ 9.20% annually on quarterly basis. The interest is rounded off to the nearest rupee.
- The deposit duration is 5 year; no withdrawal is allowed before maturity. Premature closure is possible and the deposit can be extended for 3 years.
- If premature is made after a year but before 2 years; the deduction is 1.5% of the deposit; after 2 year it is 1% of the deposit amount.
- If the depositor passes away the entire amount along with the interest is refunded without any deductions.
- Investment under the scheme qualifies for deduction under Section 80C.
Advantages and Disadvantages of the Senior Citizens Savings Scheme
Safety is the most obvious advantage of this scheme. However there are other schemes promoted by the Government of India. So what is special about Senior Citizens Savings Scheme? Amongst the Government promoted schemes, SCSS is the one that offers highest interest. Banks also offer special rates for senior citizens on fixed deposits but these FDs may not offer the 80C benefit. Another feature of the scheme that is mandatory for any senior citizen investment products is the periodic payout. One could choose to take monthly or quarterly payouts.
Below is a table the gives a quick overview of different Government promoted schemes and their features:
|Name||Interest Rate||Income Tax Benefit|
|PPF||8.7%||Benefit under Section 80C; interest is also tax free|
|NSC||8.5% or 8.8%||Benefit under Section 80C both for principal and interest.|
|POTD||8.5% compounded quarterly||Benefit under Section 80C|
|SCSS||9.2%||Rebate under Section 80C|
The drawback of the scheme is its lack of liquidity; there is a penalty clause for withdrawal before 3 years. Partial withdrawal is not possible. In case funds are required the scheme needs to be discontinued. Though this feature (lock-in period) is there in all tax saving instruments but usually investments in Senior Citizens Savings Scheme are not made with the primary purpose of tax saving.
Thus it is advisable that if one is investing in this scheme only a part of the retirement funds are parked here. Some amount should definitely be put in more liquid options.