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Tuesday, November 24, 2015

Senior Citizens Saving Scheme


'Senior Citizens Saving Scheme (SCSS)' is offered by the Government of India and hence is one of the most safest investment option, especially for senior citizens who are looking for high returns with fair liquidity and tax benefits....Read On..

Eligibility / Who can open an account under SCSS?

Any individual who satisfies one or more of the following criteria is eligible to open an account under SCSS:
  • who has attained the age of 60 years and above on the date of opening of an account.
  • who has attained the age of 55 years or more, but less than 60 years and who has retired on superannuation or otherwise on the date of opening an account, subject to the condition that the account is opened within one month of receipt of retirement benefits and amount should not exceed the amount of retirement benefits.
  • who has retired at any time before the commencement of these rules and attained the age of 55 years or more on the date of opening of an account. (early Financial Freedom professionals)
  • The retired personnel of Defence Services (excluding civilian Defence employees) irrespective of the above age limits subject to fulfilment of other specified conditions.

SCSS Accounts
  • An SCSS account can be opened either in a Post Office or in nationalised public and private banks.
  • A depositor may operate more than one account in individual capacity or jointly with spouse (husband/wife).
  • However, joint account can be opened with spouse 'only' and first depositor in Joint account has to be the investor.
  • Any number of accounts can be opened in any post office subject to maximum investment limit by adding balance in all accounts.
  • Account can be transferred from one post office to another.

Deposits and Withdrawals
  • There shall be only one (1) deposit in the account. The deposit has to be in multiples of One Thousand Rupees.
  • The maximum amount of deposit cannot exceeding INR 15 lakh.
  • The SCSS account can be opened by cash for the amount below INR 1 lakh.
  • For an amount greater than or equal to INR 1 Lakh, only cheques are acceptable for SCSS account.
  • In case of cheque, the date of realization of cheque in Govt. account shall be date of opening of account.

Maturity & Renewal
  • Maturity period for the SCSS account is 5 years.
  • The depositor may extend the account for a further period of three (3) years after the maturity period of five (5) years. 
  • An application should be made within a period of one (1) year after the date of maturity period.

Rate of Interest
  • Effective April 2015, the rate of interest shall be 9.3% per annum, from the date of deposit payable at the end of each calendar quarter e.g. 31st March / 30th June / 30th September / 31st December.
  • Rate of interest is as decided by Ministry of Finance from time to time.
  • Interest is mandatorily payable to you. It cannot be compounded.
  • Interest can be drawn through auto credit into savings account standing at same post office, through PDCs or Money Order.

Nomination
  • The depositor may nominate a person or more than one person, at the time of opening of the account, or at any time after the opening of the account but before its closure, by an application accompanied by the passbook to the Branch.
  • Nomination made by the depositor can be cancelled or varied.

Account Closure
  • The deposit made at the time of opening of account shall be paid after the expiry of five years from the date of opening of the account on production of the passbook accompanied by a written application withdrawal form.
  • After maturity, the account can be extended for further three (3) years within one year of the maturity by giving application in prescribed format. In such cases, account can be closed at any time after expiry of one year of extension without any deduction.
  • 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.
  • For a 'matured' account, the depositor will be entitled to close the account at any time subject to the condition that the post maturity 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 upto the end of the month preceding the month of the closure of the account.


Premature Account Closure
  • The depositor may be permitted to withdraw the deposit and close the account at any time after the expiry of one (1) year from the date of opening of the account subject to the following conditions:-
    • In case the account is closed after the expiry of one year but before the expiry of two years from the date of opening of the account, an amount equal to one and half percent of the deposit shall be deducted and the balance paid to the depositor.
    • In case the account is closed on or after the expiry of two years from the date of opening of the account, an amount equal to one percent of the deposit shall be deducted and balance paid to the depositor.
  • In case of death of the depositor before maturity, the SCSS account shall be closed and deposit refunded along with interest to the nominee or legal heirs in case the nominee has also expired or nomination was not made as per rules.


Taxation
  • Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act, on the deposits made in new accounts opened on or after 8th December 2007.
  • Tax Deduction at Source (TDS) is deducted at source on interest if the interest amount is more than INR 10,000/- per annum.
  • The entire Interest income received on quarterly basis is chargeable to Income tax as per prevailing tax slabs. 

Other terms and conditions:

Summary

This is one scheme to generate a regular cash flow for senior citizens. The fact that the interest rate is 100 basis points above the 5-year government bond yield, qualifies for Section 80C benefits, is ultra safe backed by the government - all this helps our senior citizens.
All these positives make it an ideal option for retired taxpayers looking for a steady stream of income. Though the interest earned is fully taxable, retired people usually don't have a high tax liability. 

There are only couple of minor glitches I see. First one is the Rs 15 lakh investment limit per individual. If a person parks Rs 15 lakh of his retiral benefits in the scheme, he will be able to claim deduction for only Rs 1.5 Lakhs. And the 2nd of course is that the interest cannot be compounded. But these glitches should typically be overpowered by the number of positives that senior citizens can derive from this investment option.

Like the article? 
Do not hesitate to share. It can make a positive impact on someone's life.

The book "From the Rat Race to Financial Freedom" has many such investment concepts explained in a very simple and uncomplicated manner, especially in the Indian context.


Cheers

Manoj Arora
elevate your life...

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