You are retired. Life is so good. There is nothing to do all day. Watching the sea all day can also be boring. And yes…Money is not an infinite resource. It’s getting over. You need more interest on your savings and that fixed deposit is not giving you, the interest you need. So what should you do? Should you invest your hard earned money in equity? Is there a way out of this mess?
You are too old to risk investing in equity, which carries a lot of risks. Your way out of this mess…The senior citizen savings scheme.
If you are 60 years, you can invest your money in the senior citizen savings scheme. If you have just received your VRS (Voluntary Retirement Scheme) money, you can invest it in the senior citizen savings scheme. You can invest the VRS money, even if you are 55 years of age. You have to open a senior citizen savings scheme account, within a month of receiving your VRS benefit and invest your money in this account. You can invest only the money you receive from the VRS up to the maximum permissible limit, in the senior citizen savings scheme account.
This account can be opened at any post office. You can also open this account, at designated bank branches of PSU Banks and some Private Banks. You can open more than one senior citizen savings account, at the post office. You can even open a joint account with your spouse, under the senior citizen savings scheme.
The interest offered for FY 2015-16 is 9.3% a year. Once you invest in the senior citizen savings scheme, the rate of interest remains unchanged, until maturity of the scheme. The Government manages this scheme and your return is guaranteed. This is an investment free of risk.
You get interest payments from the senior citizen savings scheme, on the first working day of every quarter. You get interest payments on the first working day of January, April, July and October. The interest payments will be credited to your savings bank account. You get about INR 2,300 as interest each quarter, for every lakh you invest, in the senior citizen savings scheme.
The senior citizen savings scheme matures 5 years after you make the investment. Its term of maturity is 5 years .You can stay invested for 3 years after the scheme matures. You can even foreclose your account after a year. If you close your account before 2 years, you have a penalty of 1.5%. If you close your account after 2 years, you have a penalty of only 1%.
The maximum amount you can invest in a senior citizen savings scheme is INR 15 Lakhs. This investment limit is for all your senior citizen savings accounts, at all post offices or bank branches collectively. If you invest jointly with your spouse, the upper limit is still INR 15 Lakhs.
You get a tax deduction on the amount, you invest in the senior citizen savings scheme up to INR 1.5 Lakhs per year, under Section 80 C of the income tax act. The interest income you earn from the senior citizen savings scheme is fully taxable. The interest you earn, is added to your taxable salary and you are taxed, as per the income tax slab you fall under. The interest income is also subject to TDS at the rate of 10%, if the interest income you earn exceeds INR 10,000 in a financial year. If you do not submit your PAN card details, TDS is deducted at 20%.
Taxation of the interest on the senior citizen savings scheme, is the main problem of the scheme. Interest income you earn is taxed.TDS is cut at the rate of 10%, if the interest income exceeds INR 10,000 in a financial year.This forces senior citizens who do not have any taxable income to file ITR (Income Tax Returns).
In recent times banks have cut fixed deposit rates. Most banks pay you 7-7.5% a year as interest on your fixed deposit. If you are a senior citizen, senior citizen savings scheme is an investment you must consider.
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