Nearing a retirement? If you played your cards right in the past, we are sure that you must be having a good retirement corpus which would be maturing right about the same time. You may be expecting a huge sum of money as a retirement benefit from your employer as well. The question now is pretty straight forward. Where do you put this money? Your risk appetite is at lowest it has ever been. You are in no condition to recover from a financial setback if any. So what do you do?
Today, we discuss a scheme that addresses all such concerns of senior citizens. Even if you are not retiring, I am sure that someone in your family would be at this stage of life and hence would find value in this post. And if they’re looking out for an investment option, wait no more. We’ve got you covered. Let’s unfold the nitty gritty of this scheme step by step. What is senior citizen savings scheme?
What is Senior Citizen Saving Scheme?
Launched in October 2004, SCSS or Senior Citizen Saving Scheme is a government backed scheme which is designed specifically for retired personnel to invest. Because it is a government backed scheme, it is absolutely risk free and has guaranteed returns. Apart from that, there are tax benefits attached to this scheme as well.
Top Reasons to Invest in SCSS:
1. Safe and Reliable:
Unlike mutual funds or equity, there is no ups and downs in this scheme. It is safe and reliable and your corpus is safe with GOI. Along with that, your returns are guaranteed. There’s a fixed interest rate, updated every quarter and you are paid basis that.
2. Simple and Easy:
The scheme is kept simple intentionally, keeping in mind the target group which may not be tech savvy. There are limited number of forms meant for investing in this scheme and you can obtain the same from your nearest bank at any given point in time.
3. Good Returns:
Compared to FDs, SCSS or senior citizen savings scheme has a good return. These returns change every quarter and right now are fixed at a 7.4%. This is much higher than traditional instruments like FD, RD etc. As a matter of fact, it also beats PPF which is currently giving a return of 7.1%.
4. Tax Benefits:
The principal invested in this scheme can be claimed under 80C. There is no other scheme in the market offering flexibility to the extent of SCSS and also allowing a tax rebate. Why flexible? Because you can extend, change the duration of maturity as per your requirement. (more on it in the coming segments)
On comparison with FD, the interest rate is much higher and the proceeds aren’t taxed like in case of FDs.
So there are two categories of individuals who can apply for this scheme:
- Any one who is above the age of 60 can apply for this scheme.
- In case you have opted for a VRS (Voluntary retirement scheme), you can opt for SCSS within the age of 55-60. However, the account must be opened within 1 month of your retirement if you want to be a part of senior citizen savings scheme.
- Defense personnel can invest in this scheme after 50 years of age.
- Any NRIs or HUF (Hindu Undivided Family) are not allowed to invest in this scheme.
One can invest a minimum of Rs. 1000 in this scheme and this can go up to Rs. 15,00,000 maximum. Amount less than Rs. 1,00,000 can be deposited as a cash and above that you’ll have to present a cheque.
If you are investing in this scheme after retirement within the age limit of 55-60, in that case you are allowed to invest the sum total of what you have got as retirement benefits (Leaves, Gratuity, PF etc. ). You will be allowed to invest this sum OR Rs. 15,00,000, whatever is lower.
Standard tenure of this scheme is 5 years. Withdrawals are strictly prohibited before 1 year. However, after 1 year, you can withdraw your money with some penalty. The penalty would be equal to 1.5% of the principal penalty.
In case you decide to withdraw your money between the tenure of 2 years and 5 years, a penalty of 1% on the principal is levied.
There is no penalty in case of demise of the account holder and the nominee can claim the entire amount.
In case you want to close your account prematurely, you can fill up the Form E and submit to your designated bank for the same.
After maturity, you have an option of closure and extension of the account. If you want to extend your account, you need to fill the FORM B and account will be extended by 3 years post that.
In case you do not take decision on the account within 1 year of maturity, your account will be closed automatically, and you will start getting interest rates of Post office savings account (~5%)
How to Calculate Interest?
Interest is calculated on a quarterly basis in this scheme. This means you would divide the interest rate for the quarter by 4 and multiply it by your principal amount.
Alternatively, you can use the calculator here, to directly calculate your interest amount.
Nomination of SCSS:
In case you have a joint account with someone, by default the nominee becomes your partner. Otherwise you can fill Form C to add nominees. Nominees can also be more than one. This can be updated while opening the account or after that as well.
In case you are thinking of generating a fixed income at a decent rate of interest, without taking any risk, this scheme can be really handy. Accumulating a cash of Rs. 15,00,000 is not a big deal by the time you are getting retired. Therefore, it is totally advised to keep this into your consideration set while doing your retirement planning.