Retirement can be a scary thing. A person spends his or her entire life working and later wonders how to enjoy their twilight years. Many people think that at this phase in life, senior citizens have no role to play as far as investments are concerned, but that is not true.
A majority of the savings of a senior citizen are locked away in FDs or other forms of investment. While this is a safe mode of income via interest, it does not offer a lot of money and this is where schemes like the SCSS (Senior Citizens Savings Scheme) come into play. Apart from being tax deductible, the Senior Citizens Savings Scheme is an ultra-safe one backed by the government, making it an ideal option for retired taxpayers.
Features & Benefits of SBI Senior Citizens Savings Scheme
Some of the features and benefits of the Senior Citizens Savings Scheme of SBI bank are as follows-
- Interest on the Deposit – The SBI Senior Citizens Savings Scheme interest rate is 9.3 percent per annum
- Type of Deposit – You can make a deposit by cash (if the deposit amount is less than Rs.1 Lakh) or by demand draft (DD) or cheque
- Multiple Accounts – You can open more than one account as long as the total deposits in all of the accounts together does not exceed Rs.15 Lakhs collectively
- Nominees – You can have more than one nominee
- Joint Account – You can open a joint account with your spouse
- Extension – You can extend your SBI Senior Citizens Savings Scheme account for 3 years more after maturity
Eligibility criteria for SBI Senior Citizens Savings Scheme
- Any individual -
- Who will be 60 years old and above on the account opening date
- Who is 55 years old and more but below 60 years, but has retired on the account opening date
- Who retired before these rules started and is 55 years old and above on the account opening date
- Who is a retired Defence Services personnel is eligible to open an account. Defence Services here does not include civilian Defence employees
- NRIs are not eligible
- A Hindu Undivided Family (HUF) is not eligible for opening an account
How to open SBI Senior Citizens Savings Scheme Account
To open a Senior Citizens Savings Scheme Account with SBI bank, a depositor has to visit any deposit office and make an application in Form A. Along with this, he or she has to provide proof of age and deposit the amount in multiples of thousand. A person has the option of opening an individual account or a joint account with his or her spouse.
An individual can have more than one account, if the total deposits in all the accounts does not exceed Rs.15 Lakhs, which is the maximum limit. The deposits shall be limited to Rs.15 Lakhs or the retirement benefits (whichever is lower).
Deposits & Withdrawals
An individual can make one deposit in his or her SBI Senior Citizens Savings Scheme account. As mentioned above, this deposit has to be made in multiples of thousand and should not exceed Rs.15 Lakhs. He or she will be allowed to withdraw the money a year after opening the account along with a penalty.
SCSS Account Renewal
An individual can extend his or her Senior Citizens Savings Scheme account with SBI for 3 more years after the 5 years maturity period through an application made in Form B within 1 year after maturity date.
An individual can nominate one or more people during account opening time or anytime after it has been opened but before it is closed. He or she can do so through an application on Form C, which has to be taken along with the passbook to the branch. This nomination can be varied or canceled.
SCSS Account Maturity
The deposit office will pay the deposit amount after 5 years from the account opening date. This deposit will be paid when the depositor provides the passbook along with a written application on Form E. If the depositor fails to close the Senior Citizens Savings Scheme account with SBI on maturity and does not even extend it, then his or her account will be considered as matured. Post maturity, the account can be closed at any time and the depositor will have to pay the interest.
SCSS Depositor’s Death
In case the depositor passes away before maturity, his or her Senior Citizens Savings Scheme account will be closed and the deposit will be refunded along with the interest to the nominee. If there is no nominee, or if he or she has also passed away, then the refund will be made to the legal heir of the depositor.
If the total amount to be refunded is up to Rs.1 Lakh, then it will be paid to the legal heir when the person provides the following documents –
- Letter of indemnity
- Letter of disclaimer on affidavit
- A stamped paper containing the death certificate of the depositor
Senior Citizens Savings Scheme premature account closure
When the depositor makes an application in Form E, then he or she may be allowed to withdraw the deposited funds and close the SBI Senior Citizens Savings Scheme account any time after 1 year from the account opening date provided the following conditions are followed –
- If the account is closed after 1 year from the opening date but before 2 years, the balance shall be paid to the depositor after a deduction of 1 and half percent of the deposit
- If the account is closed on or after 2 years from the opening date, the balance shall be paid to the depositor after a deduction of 1 percent of the deposit
Mode of Deposit
An SBI Senior Citizens Savings Scheme holder has an option to deposit cash into his/her account using the below modes:
- Cash deposits: Cash deposits can be made if the deposit amount is less than Rs.1 lakh.
- Cheque deposits: Account holder can also make a deposit by issuing a cheque drawn in favor of the depositor and endorsed in favor of the deposit office.
- Demand draft: An individual can also make a deposit by taking a demand draft from SBI Bank.
Advantages of SCSS
- The entry age is reduced from 60 years to 55 years to those who have opted for voluntary retirement. However, the VRS takers should apply for this scheme within one month of receiving retirement benefits. Once an account holder locks the interest rate, it remains the same till the maturity of the scheme. This protects the account holders from decreasing interest rates.
- Quarterly payment is made under the SBI Senior Saving Scheme which is beneficial for retirees or others who need fixed income to meet their expenditure.
- There is an option to renew the account after a tenure of five years.
- An account holder can also foreclose the account after one year of opening it.
- There is no penalty if the account holder closes the account after renewing it post completion of five years.
- An individual can open more than one SBI Senior Citizens Savings Scheme account by opting for a joint account with his/her spouse.
Disadvantages of Senior Citizens Savings Scheme
- There is an investment limit under the SBI Senior Citizens Savings Scheme. An account holder is not allowed to invest more than Rs.15 lakhs in the account. Also, deposits can be made only in multiples of Rs.1,000.
- There is a risk involved in the investment as the returns could decline if the bond yield declines due to non-performance.
- Quarterly payouts may be unnecessary for people who are not looking for a fixed income.
- If the account is closed during the first 2 years from the date of opening the account due to any emergencies, a penalty of 1.5% will be levied.
- If the account is closed after the first 2 years from the date of opening the account due to any emergencies, a penalty of 1% will be levied.
- While the investments made under the SBI Senior Citizens Savings Scheme are exempted from tax, the interest earned under this scheme is taxable. This income is subjected to tax deducted at source if an account holder earns more than Rs.10,000 in a financial year. This is very inconvenient as senior citizens should file for tax returns to get the excess TDS even if they do not have a taxable income.
13 Rules for Senior Citizens Savings Scheme
- There are 13 SCSS rules that every SBI account holder must know. This will help them to manage their account better.
- Rule 1: You have to be a senior citizen(at least 60 years old) to open an SBI Senior Citizens Savings Scheme account. Senior citizens who have opted for voluntary retirement can invest if they are 55 years old.
- Rule 2: One can open multiple SBI Senior Citizens Savings Scheme accounts under joint holding. The joint account holder should be his/her spouse.
- Rule 3: Account holders can deposit only once in the SBI Senior Citizens Savings Scheme account. Deposits cannot exceed Rs.15 lakhs and should be made in multiples of Rs.1,000.
- Rule 4: Interest earned during the first year will be paid on March 31st, September 30th, and December 31st. Interest earned during the next few years will be paid on March 31st, June 30th, September 30th, and December 31st.
- Rule 5: An SBI Senior Citizens Savings Scheme account will mature in 5 years. Upon maturity, the account holder can choose to either claim the amount or renew it for another 3 years. A specific application form should be submitted to renew the account.
- Rule 6: Individuals should pay by cash if the deposit amount is less than Rs.1 lakh. If the deposit amount is more than Rs.1 lakh, he/she can pay by cheque or demand draft.
- Rule 7: SBI Senior Citizens Savings Scheme account can be transferred almost instantly from one post office to another or from one bank to another. It is simple and less time consuming.
- Rule 8: Account holders have the option to add a nominee while opening an account. If they have not added a nominee while they opened the account, they can add it later provided their account has been operational for a predefined amount of time.
- Rule 9: Account holders have premature account closure option for withdrawal of money. The account has to be operational for at least one year to exercise this option. If the account is closed during the first 2 years from the date of opening the account due to any emergencies, a penalty of 1.5% will be levied. If the account is closed after the first 2 years from the date of opening the account due to any emergencies, a penalty of 1% will be levied.
- Rule 10: In a joint account, the primary account holder will be considered as the investor and the secondary account holder will be the stakeholder.
- Rule 11: If the account holder earns more than Rs.10,000 interest in a financial year, he/she has to file for the excess TDS. In this case, tax will be deducted at source.
- Rule 12: The interest earned by the account holder will be auto-credited into the account holder’s savings bank account in the same bank or post office, wherever the account was opened.
- Rule 13: Account holders can enjoy tax benefit on the investment made under the SBI Senior Citizen Scheme. The maximum amount till which tax benefits can be enjoyed is up to Rs.1.5 lakhs. Investments more than Rs.1.5 lakhs will be taxed. The same rule shall apply for multiple accounts. The total investment above Rs.1.5 lakhs will be taxed.
How is interest calculated in SCSS ?
Every investor would love to know how much he/she is able to earn from the investment they make. It is one of the most interesting things to know. If one knows the income they are going to get, they can plan their expenses accordingly. That is why it is important to know how much a senior citizen will earn under the SBI Senior Citizens Savings Scheme. For this financial year 2016-2017, the interest rate on SBI Senior Citizens Savings Scheme is 8.6% p.a. Interest is paid on a quarterly basis for all SBI Senior Citizens Savings Scheme account holders. For this reason, the quarterly interest rate is calculated as follows:
Currently, the yearly SBI SCSS interest rate is 8.6% p.a. Hence, the quarterly interest rate will be 8.6% divided by 4 which is 2.175% p.a. According to this calculation, if you invest Rs.10,000, the interest you will earn will be Rs.217.5 (Rs.10,000*2.175/100). The formula used for calculating the SCSS interest earned is as follows:
Earning= (P*R)/400 where “P” stands for principal, “R” stands for interest rate, and 4 stands for 4 quarters in a year.
Tax Benefits in SCSS
When we talk about tax benefits, you will have to understand two main components, namely TDS and Income Tax Under Section 80C. TDS stands for Tax Deducted at Source. If an account holder earns more than Rs.10,000 interest in one financial year, TDS becomes mandatory. If interest earned is less than Rs.10,000 in a financial year, TDS will not be required. Account holders will enjoy income tax benefits under Section 80C of the Income Tax Act for investments up to Rs.1.5 lakhs. However, investment above Rs.1.5 lakhs will be taxable.
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