It is a savings scheme offered to senior citizens (above 60 years). The scheme matures after 5 years from the date of opening the account and can be further extended by 3 years. It is a government backed scheme. A person who wants to start an SCSS account can approach any public/private sector banks and post offices. The interest rate on SCSS is the highest among several small schemes in India. At present the interest rate on SCSS is 8.6% for quarter Jan-March 2020. This rate is reviewed each quarter by the ministry of finance and changes are made accordingly.
The minimum amount to be deposited in a SCSS account is Rs 1,000 and the maximum limit is Rs 15 Lakh. If the amount deposited exceeds Rs 1 Lakh, then cheque or demand draft is obligatory.
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Under Section 80C of the income tax act 1961, deposits in SCSS enjoy tax deduction up to Rs 1.5 Lakh a year. Interest earned on this scheme is taxable. If the interest earned is more than Rs 50,000 during a financial year, then TDS is applicable.
See Also: Financial Plans For Retirement Benefits
A recent research by SBI has come up with the opinion to make SCSS tax free. Although this scheme has its set of advantages, interest earned on the scheme is fully taxed. This taxation reduces the impact of the scheme.
If the government removes taxation on SCSS, it will be a great support to senior citizens. The aim of SCSS is to ensure the financial security of senior citizens.
According to SBI reports, in the year 2018, the outstanding amounts under the scheme were Rs 38,662 crores. If the government had avoided tax on this amount, then the government would have a revenue deficit of just Rs 3,092 crores. The effect of this deficit will be as low as 2bps on the government’s fiscal deposit.
Considering the social security scenario in India, it is highly recommended that the government declares SCSS as a tax free scheme. In India, where only 5% of the population has access to social security, implementing tax on this scheme does reduce its attractiveness.
The declining interest rates have been a growing concern in the minds of the people. Pensioners will have to face a decreased interest income, along with paying off a large sum as tax.
The main objective of pension schemes and savings schemes are to impart social and financial security to the needful. However, with the existing tax and interest rate regimes, this is a lot less beneficial. Therefore, removing tax on these schemes helps reduce this problem to a large extent.
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