SCSS: A good investment option for retirees

You can open an SCSS deposit in any post office or designated branches of PSU banks

If you are a senior citizen looking for investment options that can help you minimise risk and maximise returns, the Senior Citizen Savings Scheme (SCSS) is a good option to consider.

What is it?

SCSS was introduced by the Central government in 2004, to provide guaranteed returns to senior citizens.

The scheme is designed to provide an assured return every quarter and help senior citizens with liquidity to meet their operating expenses.

The deposit scheme does not offer a cumulative option. The pay-out is fixed at the time of investment and happens on a quarterly basis.

How to get started?

One can deposit retirement benefits of up to ₹15 lakh in SCSS. You can open an SCSS deposit in any post office or designated branches of public sector banks such as SBI, PNB, Bank of India, Bank of Baroda, Andhra Bank and Union Bank of India.

Besides post offices and public sector banks, ICICI Bank is the only private sector bank to offer the scheme.

As the first step, you will have to open a savings bank account with the bank.

You need to submit the filled account-opening form, along with two passport-size photographs and an original identity proof which will be verified at the time of opening the account. Other documents needed for investing in SCSS include address and identity proofs such as the Aadhaar, passport, PAN card, driving licence, voter’s identity card or ration card. Declaration in Form 60 or 61 as per the Income Tax Act, 1961, has to be given by those who do not have PAN.

Who is eligible?

The scheme is open to senior citizens who have completed 60 years of age as on the date of opening the account.

In case you have completed just 55 years of years, but have retired from service either on account of superannuation or otherwise, you can open an SCSS account. For retired defence personnel, the minimum age has been relaxed to 50 years.

Interest rate

The interest rate of SCSS is notified and revised by the Ministry of Finance every quarter, beginning April 1, 2016.

The interest rate for the first quarter of 2018-19 has been fixed at 8.3 per cent. The interest is paid out every quarter.

The rate that you invest in holds till maturity.

Tenure

An investment in SCSS has a five-year lock-in — you cannot withdraw money out of the scheme before five years from the date of deposit. In case you wish to stay invested beyond five years, you can renew it for an additional three years. In case you fail to renew it after the five-year period, the deposit will be deemed matured and can be withdrawn anytime.

The interest rate for the period between the maturity date and closure will be as per the rate notified by the Centre for deposits under the Post Office Savings Scheme.

Premature closure is allowed after one year, on deduction of 1.5 per cent of the deposit amount, and after two years, on deduction of 1 per cent of the deposit amount.

Tax benefit

Besides attractive interest rates, the additional sweetener in SCSS is the tax benefit.

Investment in SCSS is eligible for tax benefit under section 80C of the I-T Act, subject to a yearly ceiling of ₹1.5 lakh.

The interest received on SCSS is taxable. Also, tax deducted as source (TDS) is applicable if the interest amount is more than ₹50,000 a year. But Form 15H can be submitted to avoid TDS.

SCSS vs long-term FD

The interest rate under SCSS is higher than the rate for regular term deposits of up to five years. For instance, SBI offers 7 per cent on term deposits with a maturity of 3-5 years for senior citizens, which is 1.3 per cent lower than SCSS. The only advantage with a regular term deposit is that there is no lock-in and it comes with a cumulative option, which suits those who don’t need liquidity to meet expenses.

The writer is co-founder, Rana Investment Advisors.

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