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5 Things to Note Before Investing in the Senior Citizen Savings Scheme Research Team | Posted On Saturday, April 20,2019, 05:28 PM

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5 Things to Note Before Investing in the Senior Citizen Savings Scheme



Senior citizen saving scheme is one of the best investment options for individuals proceeding towards retirement. The scheme is backed by the government, and, therefore offers a sovereign guarantee. The scheme offers attractive interest rates and can be availed easily at the post office or public sector banks and involves minimum documentation.

So, if you are planning to park your money in SCSS scheme post retirement, then here are some important points you must know before investing in the SCSS scheme:


The senior citizen savings scheme is tailor-made to suit your requirements after retirement. This is the reason the scheme has certain specific eligibility criteria like age of entry, maximum deposit limit etc., to serve the senior citizen category. The SCSS can be opened by individuals only after attaining 60 years of age. Individuals who have opted for voluntary retirement scheme (VRS) or superannuation can also invest in this scheme. However, they need to opt for the scheme within one month of retirement.For defence personnel, the age of entry is lowered to 50 years and above.

There are several other benefits offered by the scheme. The scheme offers the account holder with the nomination facility. The account holder can open an individual or joint account with spouse. The depositors can make only one time investment in SCSS account. The amount paid as deposit must be in multiples of Rs. 1000. The maximum amount that can be invested is Rs. 15 lakh.

Regular Income

The SCSS is aneffective and long term savings option that offers capital protection along with quarterly interest payment as a source of income. The interest paid by the scheme is taxable and will be taxed as per the investor’s tax slab.

The SCSS scheme offers you an avenue to get additional income along with your pension to meet the necessary expenditures. If you receive a pension and earn interest on any other scheme, then this scheme will allow you to see a rise in your income or bridge your income shortfall. The scheme is especially useful for government employees who receive a pension. In case you do not want a monthly income you can still park your money in this scheme. The interest will get transferred to your savings account and you can withdraw it directly after maturity. Currently, therate of interest offered by the scheme is 8.7%.

SEE ALSO: Senior Citizen Savings Scheme Account

Tax Benefits and Laddering:

Investment up to Rs. 1.5 lakh is eligible for income tax deduction under section 80C of the Income Tax Act. So instead of depositing a lump sum at one go, you can rather go for investing partly each year. Suppose you want to deposit Rs. 9 lakh in the scheme, try not to invest the entire sum at once. Rather invest 3 lakhs in the first year and repeat the same process for the next two years.

With a little bit of planning, you can not only reduce your tax outgo but also enjoy other benefits. Each time the deposit matures, you can reinvest the money and enjoy tax benefits. Also, dividing your investment into three different accounts will allow you to break any one deposit duringemergency situations, while the other two deposits will continue receiving interest payment. Thus it helps to reduce investment risk.

Also, separate maturity dates will allow you to benefit from the changing interest rates. If you invest your money at one go then you may be exposed to low-interest income if the prevailing rates are low.

Tax Deductible at Source

Since the interest income is taxable, you must take care of the tax deducted at source (TDS). From the current financial year, the interest earned by senior citizensfrom deposits is exempted up to Rs. 50,000 as per section 80TTB; the rest will be deducted at the source by the bank/post office as per rule. So, if your total interest income is within the prescribed limit, then you may choose to provide a 15H declaration to avoid TDS.

SEE ALSO: Why is Senior Citizens Savings Schemes Better than FD?

Penalty for Premature Withdrawal

Since the interest income on this scheme is pre-specified and do not depend on market fluctuations, it requires the deposit money to be locked in for a specific time period. Any premature withdrawal is liable to be penalized as per the rules of the financial institution. Withdrawals are generally allowed after one year. After a year and before two years, any withdrawal made will attract a penalty of 1.5% of the withdrawn amount. In case you withdraw the deposit after two years, the penal charges are a percentage of the withdrawn amount.

So, instead of concentrating your entire investment in a single deposit, you can opt for a staggered investment approach as mentioned above. You can see an amount maturing every year which helps you handle your planned expenditures more efficiently.

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