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Senior Citizen Saving Scheme- An investment cum tax saving option for senior citizen

TAX TALK-26.10.2015-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant

Senior Citizen Saving Scheme- An investment cum tax saving option for senior citizen

Query 1]
Kindly clarify the following points with respect to SCSS bank deposits with locking period of 5 years. I am under sr.citizen category.
1.      Is this deposit is covered now under 80C for income tax rebate?
2.      Can deposit can be made of more than Rs. 1.50 Lacs but tax rebate can be claimed only of max. Rs 1.50 Lacs only for particular FY.?
3.      Is there any max/min. ceiling deposit amount under this SCSS? (All deposit combined). Kindly clarify. [Muneshwar Gandhi- mgandhi57@gmail.com]
Opinion:
Senior citizen undoubtedly deserves special favor in every sphere of society. As far as tax laws are concerned, most of the tax saving instruments u/s 80C like ELSS, investment in Life insurance policy etc may not be feasible, possible or comfortable to them. The five-year Senior Citizen Savings Scheme (SCSS), which was launched in 2004 could be one of the preferred choice for multiple reasons.
Apart from safety, security, regularity of income, risk free investment, little bit higher returns, decent limit to park the fund; SCSS also offers certain tax benefit. Investments up to Rs 1.50 Lacs in the scheme are eligible for deduction under section 80C of the Income Tax Act. While the positives are many, there is one major drawback that interest on SCSS A/c is taxable which is not so with PPF Account.
Many of the taxpayers are not aware of the various features of scheme. The following will enable senior citizens to know more about the scheme, to take an informed decision regarding investment.

1.      Rate of interest:
Keeping the requirements of senior citizens in mind, the interest payout is quarterly to maintain regular income flow. From 01.04.2015, interest @ 9.30% per annum, payable from the date of deposit to 31^st March/30^th June/30^th Sept/31^st December in the first instance & thereafter, interest shall be payable every quarter ending on 31^st March, 30^th June, 30^th Sept and 31^st December. [Interest rate is linked to G-Sec with spread of 100 basis points i.e., 1% over the G-Sec rate].
2.      Amount of Deposit:
There shall be only one deposit in the account which could be in multiple of Rs. 1,000/. Maximum amount of investment under the scheme is restricted to Rs. 15 Lacs. A depositor may operate more than one account in individual capacity or jointly with spouse (husband/wife) subject to overall maximum cap of Rs. 15 Lacs. Account can be opened by cash for the amount below Rs. 1 Lacs & and by cheque if deposit amount exceeds Rs. 1 Lacs.
3.      Age Limit for participating in the account:
a] An individual of the Age of 60 years or more may open the account.
b] 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 account subject to the condition that the account is opened within one month of receipt of retirement benefits and amount should not exceed the amount of retirement benefits.
c] The retired personnel of Defence Services (excluding Civilian Defence Employees) will be eligible to subscribe under the scheme irrespective of the age limit of 60 years.
4.      Maturity period of account:
Maturity period is 5 years. After maturity, the account can be extended for further three years within one year of the maturity by giving application in prescribed format. In such cases, account can be closed at any time after one year of extended period.
5.      Nomination facility:
Nomination facility is available at the time of opening and also after opening of account. Nomination made by the depositor may be cancelled or varied by submitting a fresh nomination. Nomination can be made in joint account also. In such case, the joint holder will be the first person entitled to receive the amount payable in the event of death of the depositor. The nominee’s claim will arise only after the death of both the joint holders.
6.      Where to open the account:
Any number of accounts can be opened in any post office or designated branches of 24 Nationalized bank & one private sector bank, subject to maximum investment ceiling of Rs. 15 Lacs by adding balance in all accounts. Joint account can be opened with spouse only and first depositor in Joint account is the investor. Account can be transferred from one post office to another.
7.      Interest payment:
In case of SCSS accounts, quarterly interest shall be payable on 1st working day of April, July, October and January. Interest can be drawn through auto credit into savings account standing at same post office, through PDCs or Money Order. It will be applicable at all CBS Post Offices.

8.      Pre-matured Withdrawals:
a] Premature withdrawal is allowed only on completion of one year. In case of premature closure there would be deduction @ 1.50% & after 2 years @ 1% of the deposit amount.
b] If the deposit is withdrawn within a period of 5 years of its deposit, the amount so withdrawn would be taxable in the year of withdrawals. It is better not to invest if the investment could not be kept untouched till 5 years.
9.      Loan facility:
The facility of pledging the deposit / account under the SCSS, 2004 for obtaining loans, is not permitted. [GOI letter F. No.2/8/2004/NS-II dated May 31, 2005].
10. Tax benefit, Taxability of Interest & TDS:
Interest income is not tax free. It would be taxable and would also be subject to Tax Deduction at Source (TDS) if interest amount is more than Rs. 10,000/- p.a. Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act, 1961 subject to overall maximum cap of Rs. 1.50 Lacs.
11. Whether Joint account can be opened?
Joint account under the SCSS, 2004 can be opened only with the spouse. In case of a joint account, the age of the first applicant / depositor is the only factor to decide the eligibility to invest under the scheme. There is no age bar/limit for the second applicant / joint holder (i.e. spouse). Both the spouses can open individual and / or joint accounts with each other with the maximum deposits up to Rs.15 lakh each, provided both are individually eligible to invest under relevant provisions of the Rules governing the Scheme.

Account by NRI/POI/HUF:
Non resident Indians (NRIs), Persons of Indian Origin (PIO) and Hindu Undivided Family (HUF) are not eligible to invest in the accounts under the SCSS, 2004. If a depositor becomes a Non-resident Indian subsequent to his/her opening the account and during the currency of the account under the SCSS Rules, the account may be allowed to continue till maturity, on a non-repatriation basis and the account will be marked as a Non-Resident account.

Now, coming to specific part of the queries,
1.      The deposit in SCSS is eligible for deduction u/s 80C subject to overall cap of Rs. 1.50 Lacs.
2.      Deposit can be made of more than Rs. 1.50 Lacs subject to aggregate limit of Rs. 15 Lacs under SCSS.
3.      Minimum deposit under the scheme could be Rs. 1,000/- & maximum amount under SCSS cannot exceeds Rs. 15 Lacs.

[The author is a practicing Chartered Accountant from Nagpur.
Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at
nareshjakhotia@ssrpn.com].