Benefits of Senior Citizen Savings Scheme

In the second half of 2004, the five-year Senior Citizen Savings Scheme (SCSS), was launched. This scheme became a big hit as it offered higher returns.

Now, most of the investor’s schemes who had invested in the initial time period will be maturing in the coming days. Thus it becomes important to relook at these schemes before thinking of reinvesting in them.

On this scheme the rate of interest offered is 9%, which is quite high, in comparison to the existing rates. This return is paid to the investor every quarter. As for the high rate of interest, there is no other scheme for senior citizens offering such high interest rate.

For instance, on the bank fixed deposit for long tenure the interest rate is offered in the range of 7-7.5%. Therefore, it will be better to invest in the same scheme.

In this scheme the initial investment is done for a period of five years, thereafter it can be extended only for three year. And for extension a form has to be filled in the respective bank or post office where the investment has been done.

The other benefits of the scheme are – along with high returns and safety of money, there is a tax benefit. The investment of up to Rs 1 lakh is eligible for a deduction under section 80C of the Income Tax Act.

But in the recent revised Direct Tax Code it has not been clarified that, this benefit will continue or not. Investors should contact their respective bank or post office to get clarification on this, in order to continue getting the tax advantage.

The senior citizens who are of 65 years and above should invest the maximum possible amount in this scheme, because they come in the highest tax bracket, and if the returns from this instrument do not exceed their basic exemption limit of Rs 2.4 lakh, they can earn tax-free returns.

This scheme has one major negative aspect. It lacks liquidity. In this scheme investors cannot withdraw, when they wish to. In old age, people might need sudden influx of cash for medical or other needs, but they cannot withdraw before maturity of the scheme. Moreover, in this scheme transfer facility is not available.

There are few schemes that offer protection as well as high returns for individuals. So till the initial Rs 15 lakh limit per person is utilized by the individual, it is a good choice.

But, for people who have a higher amount for investment, this scheme is not adequate from investment point of view as well as for generating higher returns.

The other debt options have some point which makes a choice difficult for the senior citizen. For example the monthly income scheme of the post office has a maximum investment limit of Rs 4.5 lakh for a single individual.

In monthly income plan of a mutual fund there is no guarantee of any return. And, if the conditions are not favorable as are now, then, there might not even be any payout. Other bonds and debentures will not ensure a regular cash flow that meets a senior citizen's needs.

In comparison to these alternatives, SCSS is best to earn regular return.