Now, senior citizens can enjoy high and guaranteed returns for long term

Since there are penalties for premature withdrawal, take liquidity needs into account

The government has made a few changes to the Senior Citizen’s Savings Scheme (SCSS), 2019, through the Senior Citizen’s Savings (Fourth Amendment) Scheme, 2023. Says Gaurav Aggarwal, chief product officer (credit products), Paisabazaar: “The objective of these amendments is to make the scheme more beneficial for retired employees and their spouses.”

Multiple extensions
 

SCSS beneficiaries had previously been allowed to extend the scheme by three years, once the scheme matured after five years. Now they can extend it multiple times in blocks of three years each. The interest rate will be the one prevalent at the time of the scheme’s maturity or on the date of extended maturity.
 

Says Aggarwal: “With multiple extensions, retirees now get the option to stay put in the scheme for a long time and enjoy the guaranteed returns.”
 

According to retired Col. Sanjeev Govila, chief executive officer (CEO) of Hum Fauji Initiatives, SCSS has now adopted a Public Provident Fund (PPF)-like structure, allowing unlimited extensions, though the extensions in this case will be for three years (it is five years in the case of PPF). 
 

“The interest rate traditionally offered by SCSS has been very high. Also, once set the rate remains the same throughout the investment period. Due to these factors, the government probably wants to reset its rates more frequently.”
 

The application process for extension will also be similar to that of PPF, ensuring it is the senior citizen who chooses to extend. 

Says Govila: “The idea may be to ensure that it is the senior citizen who gets the benefit of the high rates, and not the legal heirs.”
 

Benefits for deceased govt employee’s spouse
 

The spouse of a deceased government employee can now invest the retirement benefits or death compensation in the scheme, provided the employee was at least 50 years old. 
 

Says Aggarwal: “There have been multiple cases where central and state government employees above the age of 50 died while in service, but their spouses could not get the benefit of SCSS.” According to Jigar Patel, a member of the Association of Registered Investment Advisors (ARIA), “Now the surviving spouse doesn’t have to wait till the age of 60 to open an SCSS account.” Moreover, the maximum limit of Rs 30 lakh per person will not apply to the spouse of a deceased government employee.  He or she can invest the entire compensation and benefits received on the spouse’s demise in SCSS.
 

Deduction on premature withdrawal
 

Now, one per cent of the deposit will be deducted if the account is closed before one year (earlier, no interest was payable, and if paid, was deducted from the principal).  Says Adhil Shetty, CEO, Bankbazaar: “Senior citizens should only opt for this scheme if they can remain invested for the next five years.”
 

Note that multiple accounts can be opened under the scheme, subject to the maximum total deposit of Rs 30 lakh for an individual. 
 

Says Aggarwal: “Opening multiple accounts is advisable so that in case of an emergency if the account holder has to encash one account within one year of scheme opening, he will have to pay a lower penalty and can continue to receive the scheme’s benefits in the remaining accounts.”
 

Pay heed to cash flow needs  
 

SCSS is an attractive scheme for senior citizens who want high (8.2 per cent currently), risk-free returns. The scheme is eligible for tax deduction of up to Rs 1.5 lakh under Section 80C.
 

The scheme has now become more inclusive and flexible, with a longer tenure, making it more attractive for retired employees. 
 

Says Patel: “However, interest on SCSS is taxable, so other income and assets need to be analysed before investing in SCSS.” There is a penalty for premature withdrawal, so liquidity requirements should be considered.

SCSS: A few more changes

- More time to invest retirement benefits: A retired individual aged more than 55 but below 60 years will now have three months (compared to the earlier one month) to invest in SCSS

- Retirement benefits defined: Retirement benefits refer to any payment received by an individual due to retirement or superannuation (provident fund dues, gratuity and pension commutation, and other related benefits)

- Maximum deposit amount: New account or accounts may be opened by the depositor subject to the maximum deposit limit of Rs 30 lakh per depositor

- Extension rule: An account can be extended by three years, provided an application is made within one year after the date of maturity