My father became a senior citizen a few year back & I was looking for the best place to park his money where he would get a regular income. Senior citizen savings scheme (SCSS) is the simplest investment vehicle among all options available for retirees. Given the benefits it offers, retirees should first put in Rs 15 lakh in SCSS before looking for other avenues. Only if the investor has adequate pension income, then one may not need regular income & may opt for some other cumulative bond funds.
An SCSS account can be opened by an individual who is above the age of 60. Any individual, who has opted for a voluntary retirement scheme or retired between the age group 55 and 60 years, can opt for this scheme within one month of retirement. For defence personnel, the retirement restriction has been lowered to 50 years or more.
An individual can operate more than one account individually or jointly, subject to the Rs 15 lakh deposit limit in all accounts put together. A joint account is allowed only with one’s spouse. An individual cannot open a joint account with his son or daughter.
SCSS currently pays interest quarterly at the rate of 8.3%. The rate of interest like all other government small savings schemes is subject to revision each quarter. The interest paid is taxable in the hands of the investor based on the income tax slab.
Investments up to Rs 1.5 lakh are eligible for deduction under section 80C of the Income Tax Act. So, if one plans their investments carefully, one can plan their taxes outgo as well. Instead of investing the full amount at one go, retirees can invest partly each year, thus availing the tax benefit each time one invests. For instance, if a retiree jointly invests Rs 3 lakh in this scheme annually along with his spouse, he will end up investing Rs 15 lakh by the end of the fifth year. Each time the deposit matures, he just has to reinvest the money and enjoy the tax benefit.
Since the interest income is taxable, an investor must take reasonable care about the tax deducted at source (TDS). If the total income is within the prescribed limit, one may choose to provide a 15H declaration to avoid TDS.
If one wants to make a premature withdrawal, he/she will face penal charges. Withdrawals are allowed only after a year. After a year but before two years, if one decides to withdraw, the retiree will have to forgo 1.5% of the withdrawn amount. In case of withdrawal after two years, the penal charges are a percent of the amount withdrawn.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 10 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’