Senior Citizen Saving Scheme - Tax Saving

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George Foreman said; "The question isn't at what age I want to retire, it's at what income." He could not have been more right about income in retirement. Defined pensions are a lot better to look for

 

George Foreman said; "The question isn't at what age I want to retire, it's at what income." He could not have been more right about income in retirement. Defined pensions are a lot better to look forward to in retirement than anything else.

Features
Eligibility
You need to be a retired Resident Indian to open an account

Entry Age
• 60 years
• 55 years for those who have retired on superannuation or under a voluntary or special voluntary scheme
• The retired personnel of Defence Services (excluding Civilian Defence Employees) shall be eligible to invest irrespective of the age limits subject to the fulfilment of specified conditions

Investments
• Minimum: Rs 1,000
• Maximum Rs 15 lakh
• Deposits have to be in multiples of Rs 1,000

Interest
• 9.30 per cent per annum compounded quarterly
• The interest is paid on 31st March, 30th June, 30th September and 31st December each year

Tenure
• 5 years which can be extended by 3 more years

Account holding categories
• Individual
• Joint with spouse

Nomination
• Facility is available

Senior Citizens Savings Scheme
Retirement brings with itself several complications and doubts, but there are savings products that are safe and ensure guaranteed retirement income. The Senior Citizen Savings Scheme (SCSS), launched in 2004 is a deposit scheme introduced by the government of India to provide guaranteed returns to senior citizens through a safe investment. This scheme ensures a regular income stream for senior citizens in retirement.

Investment Objective and Risks
The main objective of the SCSS is to provide an assured 9.30 per cent return paid every quarter to senior citizens which help them create a guaranteed regular income flow.

Capital Protection
The capital in the SCSS is completely protected as the scheme is backed by the government of India, making it totally risk-free with guaranteed returns.

Inflation Protection
The SCSS is not inflation protected, which means whenever inflation is above the current guaranteed interest rate of 9.30 per cent; the deposit earns no real returns. However, when the inflation rate is below 9.30 per cent, it does manage a positive real rate of return.

Guarantees
The interest rates on this scheme will be notified before April 1 of that year, and is aligned with G-Sec rates of similar maturity, with a spread of 1 per cent. Currently the interest rate in the SCSS deposit is 9.30 per cent per annum compounded quarterly.

Liquidity
The SCSS is liquid, despite the 5-year stipulated lock-in. The liquidity is offered in the form of withdrawals subject to conditions and penalties.

Credit Rating
As the SCSS is backed by the government of India, it does not require any commercial rating.

Exit Option
Premature closing of the account is permitted with penalty.

The facility of pledging the deposit in the SCSS account to obtain loans is not permitted as it defeats the purpose of regular income.

Premature withdrawal or closure of the SCSS account is permitted after completion of one year from the date of opening the account after deducting a penalty for early withdrawal or closure that varies from 1-1.5 per cent depending on the completed tenure of the account.

• If the account is closed after the first year and before the end of the second year, an amount equal to 1.5 per cent of the deposit shall be deducted as penalty.
• If the account is closed on or after the second year, an amount equal to 1 per cent of the deposit shall be deducted.

Other Risks
There is no risk associated with this investment which is why the investment is totally risk-free.

Tax Implications
The sum invested in the SCSS on or after April 1, 2008 is eligible for tax deduction under section 80C of the Income Tax Act. However, the interest earned on the deposit is fully taxable and tax is deducted at source (TDS) only if the total interest in a year is above Rs 5,000. However, if the income is not taxable, one has to provide form 15H or 15G so that no tax is deducted at source.

Where to open an Account
Any head post office or general post office. Select branches of the 24 designated nationalized banks: State Bank of India, State Bank of Hyderabad, State Bank of Indore, State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Saurashtra, State Bank of Mysore, State Bank of Travancore, Allahabad Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Punjab National Bank, Syndicate Bank, UCO Bank, Union Bank of India, United Bank of India, Vijaya Bank and ICICI Bank.

How to Open an Account
Once you have selected the bank to open the SCSS account, you will first need to open a savings bank account and you will need the following documents:
• An account opening form which the bank will provided.
• Two passport size photographs.
Address and identity proof such as copy of the passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, voter's identity card or ration card.
• Carry original identity proof for verification at the time of account opening.

Points to Ponder
• Portability of the account from one bank to another
• ECS transfer of interest to the savings bank account
• Penal provisions in case of early closure of the account

The SCSS rules can be found in the passbook.

Tips and Strategies
The guaranteed interest from this scheme can be used to create income streams to manage cash flows in retirement.

• Extend the SCSS account on completion of five years by an additional three years.
• Split the SCC account into two individuals accounts for self and spouse to reduce the impact of early closure of an account in case of emergencies.
• It is wise to foreclose the account and invest in a bank savings account whenever banks offer higher interest rate on long-term deposits.

Going Online
If one has an online bank account with a bank which also offers SCSS; the two can be linked which enables online access to the SCSS.

 

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