The government has kept the interest rates on small savings schemes unchanged for the eighth consecutive quarter. This is good news for risk-averse investors, especially senior citizens who seek to keep their hard-earned money safe and yield steady returns.
It seems, the government has considered the fact that bond yields have inched up of late against the backdrop of the West Asia war, elevated Brent crude oil price (above US $ 100/barrel), foreign capital outflow, weak Indian rupee, expected higher trade deficit, current account deficit, supply concerns, and chances of inflation moving up, in making this decision.
Among the small savings schemes, the Senior Citizen Savings Scheme (SCSS) continues to offer the highest interest rate of 8.2%, which is compounded annually and paid quarterly.
Amidst times when interest rates on bank fixed deposits have fallen due to the RBI's policy repo rate cuts, SCSS remains a worthwhile proposition for retirees.
Who Can Invest in SCSS?
As per the present rules, civilian employees between 55 and 60 years of age who have retired under a Voluntary Retirement Scheme (VRS) are allowed to invest in SCSS.
Similarly, retired defence employees above 50 years of age and below 60 years of age can opt for SCSS.
But in both cases, the condition is that the investment is made within 1 month of receiving retirement benefits.
How to Deploy Money in SCSS?
Investments in SCSS can be made in a single name or jointly with your spouse (husband/wife) with public sector banks, authorised private sector banks (viz. ICICI Bank, HDFC Bank, Axis Bank, IDBI Bank), and/or India Post branches.
In the case of a joint account (with the spouse), the whole amount of the deposit will be attributable to the first holder only.
You can open multiple accounts in different banks/ post offices of various denominations, subject to the minimum (of Rs 1,000) and maximum investment limit of Rs 30 lakh by an individual. That said, it is recommended to invest a meaningful sum, so that it covers your retirement needs and provides the liquidity required – in the form of quarterly interest payouts – during the golden years of life.
Ideally, it is best to make use of the maximum permissible limit of Rs 30 lakh per individual basis on a single name.
It is best to open an SCSS account in your single name of up to Rs 30 lakh, with your spouse as the nominee or your children. The other spouse can also make investments in his/her name individually (keeping you as a nominee or children) to utilise the maximum investment limit of Rs 30 lakh.
This way, as a family, you would be able to invest a total of Rs 60 lakh (Rs 30 lakh + Rs 30 lakh) in the SCSS account in individual names, to reap the full benefit. At the current interest rate of 8.20%, doing so would earn a quarterly interest of Rs 1,23,000 (on total investment of Rs 30 lakh + Rs 30 lakh).
Note that in case you try to invest any sum over the maximum permissible limit per individual, the excess amount will be refunded immediately, and only the savings account interest shall be paid to you from the date of the excess deposit to the date of refund.
How is the Interest on SCSS Paid?
The interest on SCSS is compounded annually and paid quarterly – on the first working day of April, July, October, and January – and credited to your savings account. This provides a regular source of interest income or a cash flow that, to an extent, takes care of your retirement needs.
Tax Implications of the Interest Paid
The interest earned on SCSS is taxable as per your income tax slab. If the interest income earned in a financial year is greater than Rs 1 lakh, tax is first deducted at the source as per Section 194A of the Income Tax Act, 1961.
But to avoid tax at source, Indian residents under 60 years can furnish Form 15G or 15H, if aged 60+, to the bank/post office if the accrued interest earned is less than the aforesaid prescribed limit.
The investment made in SCSS accounts entitles you to a deduction of up to Rs 1.50 lakh (from Gross Total Income) under Section 80C of the Income Tax Act, 1961, in the year the investment is made, providing your filing returns under the old tax regime.
Documents Required to Open an SCSS Account?
Typically, for account opening, a self-attested copy of your address proof (viz. Aadhaar, Voter ID card, Ration Card, Passport, etc.), along with your photo and age identity proofs (viz. Aadhaar, PAN Card, Voter ID, Senior Citizen Card, etc.) need to be submitted to the bank and/or post office along with a duly filled SCSS account opening form (Form A) with your latest photo.
At the current attractive interest rate, SCSS is a worthwhile option for retirees, as it provides quarterly payouts to meet liquidity needs.
Moreover, in case you wish to prematurely close the SCSS account – for whatever reasons – you also have the option to do so (subject to a penalty). However, premature closure or withdrawals from the SCSS account should be carefully considered in the interest of your financial well-being.
Happy Investing!
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