If you are a senior citizen looking for a safe investment that gives regular income, the Senior Citizen Savings Scheme (SCSS) should be your first port of call. SCSS is as safe as it gets, being a small savings scheme that is guaranteed by the government. It offers an attractive interest rate (8.7 per cent currently) that is invariably superior to most comparable fixed-income alternatives. The effective return is higher, thanks to the deduction available under Section 80C (up to ₹1.5 lakh a year).

For whom

Individuals aged 60 or more can open an SCSS account; the minimum investment is ₹1,000 and the maximum is ₹15 lakh. Only one deposit can be made in an SCSS account. While any number of SCSS accounts can be opened, the maximum investment cannot exceed ₹15 lakh. Individuals aged 55 to 60 can also open an SCSS account within a month of retirement, but in this case, the investment should not exceed the amount of your retirement benefits. You can open an SCSS account singly, or jointly with your spouse; the first depositor in the joint account is considered the investor. Both a husband and a wife, if they otherwise qualify, are eligible for opening SCSS accounts, individually or jointly, with a limit of ₹15 lakh each. SCSS accounts can be opened with post offices and some banks.

The interest rate on an SCSS deposit at the time of investment stays till maturity. New rates announced each quarter will apply only to investments made in the quarter and will hold till their maturity. The interest rate could change in the April-June 2019 quarter. Like other small savings schemes, the rates on SCSS are supposed to be linked to the comparable G-Sec rate, but in practice, that is not always the case.

The maturity period of SCSS is five years, during which the rate at the time of account-opening applies. At the end of the five years, the tenure can be extended for another three years and the rate prevailing then will apply for the extended period. The application for extension has to be made within a year from the original maturity.

The interest is paid out quarterly — on the first day of April, July, October and January — and is taxable. But as per changes made in Budget 2018, interest of up to ₹50,000 a year earned by senior citizens on deposits with banks and post offices is allowed as deduction; SCSS deposits are also covered under this. In effect, income earned on SCSS deposits can escape the tax net to a considerable extent, thus adding to the effective returns of senior citizens.

For senior citizens, tax will be deducted at source if the annual interest income exceeds ₹50,000. For others, from April 1, tax will be deducted if the annual interest income exceeds ₹40,000. If your estimated tax liability is going to be nil, you can submit Form 15G or Form 15H to avoid the tax deducted at source (TDS).

Premature closure of an SCSS account is allowed after a year, but 1.5 per cent of the deposit will be deducted. Premature closure after two years will entail a deduction of 1 per cent of the deposit. In case of extension beyond the original maturity period of five years, the SCSS account can be closed at any time after one year of extension without any deduction. NRIs are not allowed to invest in SCSS.

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