Originally posted on October 26, 2022, updated on November 9, 2023:
The government issued a notification on November 9, 2023, making several important changes in the popular Senior Citizen’s Savings Scheme (SCSS), Public Provident Fund (PPF), and 5-year post office time deposit.
As per new rules, individuals of 55 Years and above who retired before 60 years of age can invest the retirement benefits in the SCSS scheme within 3 months from the date of receipt of retirement benefits. As per old rules, the time limit for opening an SCSS account was 1 month from the date of receipt of retirement benefits.
Rules for continuation of existing SCSS account:
As per the notification, “The deposit made at the time of opening of account shall be paid on or after the expiry of five years or after the expiry of each block period of three years where the account was extended under paragraph 8 from the date of opening of account. As per the old rule, extension was allowed only once.
As per the new rules, the account holder can continue to extend the account for any number of blocks of three years each. Further, the application has to be submitted for every extension. The application for such an extension should be submitted within one year from the date of maturity/extended maturity. The deposit will be extended from the date of maturity/extended maturity (irrespective of the date of application for extension at the interest rate as applicable as on the date of maturity/Extended maturity. (In case the deposit is already extended).
The maximum amount of deposit permitted under the scheme is Rs 30 lakh including the SCSS deposits already made and extended.
Penalty for premature closure before the expiry of one year:
As per the new rules, 1 (one) per cent of the deposit will be deducted if the account is closed before the expiry of one year of the investment. As per the earlier rule, if SCSS deposits are closed within 1 Year, the entire interest paid on the deposit will be recovered.
Investment by spouse of government employee
The new rules allow the spouse of a deceased government employee to invest the financial assistance amount in the scheme. Spouse of the Government employee (State /Central Government employee must be 50 Years and above who died while in service) can invest retirement benefits/death compensation in SCSS
As per the notification, retirement benefit means any payment received by the individual due to retirement or superannuation. This includes provident fund dues, retirement or superannuation or death gratuity, commuted value of pension, leave encashment, savings element of group savings linked insurance scheme payable by the employer on retirement, retirement-cum-withdrawal benefit under Employees’ Pension Scheme (EPS) and ex gratia payments under a voluntary or special voluntary retirement scheme. Under the new rules, the scope of retirement benefits is enlarged to include EPF withdrawal, ex gratia, Compensation, leave encashment etc.
For Senior Citizens, it is one of the best tax-saving schemes. Investment up to Rs.150000/- under this scheme qualifies for the benefit of Section 80C of the Income Tax Act, 1961 from 1.4.2007.
Tax rule: (ETE): Investment in SCSS is eligible for tax exemption u/s 80C IT act. The income is subjected to tax deduction at source (TDS) if it exceeds Rs 50,000 in a financial year. The depositor may not have a taxable income but still have to file their tax returns to get back the excess TDS. Redemption proceeds are not added to the income.
An individual of the Age of 60 years or more may open the account. Also, an individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under VRS can also open an account subject to the condition that the account is opened within one month of receipt of retirement benefits and the amount should not exceed the amounts of retirement benefits. The retired personnel of Defence Services (excluding Civilian Defence Employees) will be eligible to invest irrespective of the age limits subject to the fulfilment of other specified conditions.
The maximum investment limit under the scheme is restricted to Rs.30 lakh. A depositor may operate more than one account in an individual capacity or jointly with the spouse (husband/wife). Any number of accounts can be opened in any nationalized bank or post office subject to a maximum investment limit by adding balance in all accounts shall not exceed Rs.30 lakhs. Investments are to be made in multiples of Rs.1000.The whole amount of investment in an account under the scheme is attributed to the 1st applicant / Depositor only. Question of any share of the 2nd applicant / joint account holder (Spouse), therefore, does not arise.
Return on investments
The interest rate on small savings schemes is being notified on a quarterly basis instead of the earlier system of announcing every year. The Government has announced interest at 8.20% p.a for the quarter of October 2023 to December 2023. The interest on SCSS accounts payable on a quarterly basis is on the 1st working day of April, July, October, and January. To find out the latest interest rate click Interest rates of small savings investments
Interest payable after maturity of SCSS deposit
Interest payable after maturity of SCSS deposit shall be at the rate applicable to the deposits under Post Office Savings Accounts from time to time, and shall only be admissible for the period beyond maturity in accordance with the rules. The amount of excess interest paid (at a higher rate applicable to the deposits under SCSS) after maturity shall be deducted.
Renewal of SCSS
The maturity period of SCSS is 5 years. The maturity period of the senior citizen’s scheme is 5 years which can be renewed for a further period of 3 years.
Premature closure /Premature withdrawal: After one year of opening the account, premature withdrawal is allowed. If the account is closed before two years, the penalty is 1.5%. After two years, the penalty is 1%. There is no penalty if the account is closed during an extended period of 3 years. However, Banks shall not levy penal interest on the premature closure of an SCSS account due to the death of a depositor.
In the case of a joint account, if the first holder/depositor expires before the maturity of the Account, the spouse may continue the account on the same terms and conditions as specified under the SCSS Rules.
Nomination can be made in a joint account also. In such a case, the joint holder will be the first person entitled to receive the amount payable in the event of the death of the depositor. The nominee’s claim will arise only after the death of both the joint holders
Account in the name of a mentally retarded person:
There is no such provision exists under the Senior Citizen Savings Scheme to open an account in favour of a mentally retarded person to be operable by a Guardian appointed by the Court. Therefore such an account cannot be opened in favour of a mentally retarded person.
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