Starting April 1, 2023, senior citizens will be able to invest up to Rs 30 lakh in the post office's Senior Citizen Savings Scheme (SCSS). This is a significant increase from the previous limit of Rs 15 lakh. The announcement was made by Finance Minister Nirmala Sitharaman in her Budget 2023 speech. The official announcement of the increased limit is expected to come after the Finance Bill is passed.
Senior Citizen Savings Schemes
The Senior Citizen Savings Scheme is a government-backed savings scheme that provides retirement benefits to senior citizens living in India. Senior citizens can invest a lump sum amount, either individually or jointly with their spouse, to receive regular income and tax benefits.
Interest Rate and Payment Frequency for Senior Citizen Savings Scheme
Current interest rate is 8%, payable quarterly on 1st working day of April, July, October and January. Finance Ministry review the interest rate in every quarter. Interests are paid on a quarterly basis — the first working day of April, July, October and January.
SCSS Tax rebate
Senior citizens who invest in the Senior Citizen Savings Scheme can claim a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. However, this tax benefit is part of the overall annual limit of Rs. 1.5 lakh for all investments made under Section 80C. The tax benefit can be claimed only in the financial year in which the SCSS deposit is made. After five years, extending an existing account will not provide any additional benefit under Section 80C.
Premature withdrawal of the deposits from the accounts under the SCSS, 2004 permitted subject to conditions
Under the Senior Citizen Savings Scheme (SCSS), there is an option to withdraw the deposit prematurely. However, there are certain conditions that need to be met for the withdrawal to take place. If the account is closed before the completion of one year from the date of opening, the interest paid on the deposit will be deducted from the deposit, and the remaining balance will be paid to the account holder. If the account is closed after one year but before the completion of two years from the date of opening, a penalty of 1.5 percent of the deposit will be deducted from the account balance. If the account is closed on or after two years from the date of opening, a penalty of one percent of the deposit will be deducted from the account balance.
Meaning of 'retirement benefits' for the purpose of SCSS, 2004
The term "retirement benefits" in the context of SCSS (Senior Citizens Savings Scheme) refers to any payment that a depositor is entitled to receive upon their retirement, whether it is on superannuation or otherwise. This includes various payments such as Provident Fund dues, gratuity received on retirement, the commuted value of pension, cash equivalent of leave, savings element of group savings linked insurance scheme payable by the employer to the employee on retirement, retirement-cum-withdrawal benefit under the Employees' Family Pension Scheme, and ex-gratia payments received under a voluntary retirement scheme. The definition of retirement benefits was included in the Senior Citizens Savings Scheme (Amendment) Rules, 2004, which were notified on October 27, 2004.
Extension and Closure of SCSS Accounts: Rules and Regulations
The SCSS account can be extended for an additional three years by submitting an application to the deposit office within one year of maturity. If the account is not closed or extended after maturity, it will be considered as matured. The depositor can still close the account at any time, but post-maturity interest at the current rate applicable to deposits under Post Office Savings Accounts will be paid on such matured deposits until the end of the month prior to the month of account closure.
Tax Deducted at Source (TDS) on Senior Citizens Savings Scheme (SCSS)
Tax Deducted at Source (TDS) is applicable to the Senior Citizen Savings Scheme because interest payments have not been exempted from tax deduction at the source. The government has set a minimum limit for tax deduction, and it will be deducted accordingly. Even if the legal heir of the account holder receives any interest, TDS will be applicable.
The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.
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