Individual investment in SCSS
In a circular dated June 30, 2022, the Ministry of Finance reported that the government has kept the small savings interest rates unchanged for the July-September quarter of the fiscal year 2022-23. An individual over 60 can open an SCSS account by making a single deposit into the account in multiples of INR 1000 and up to a maximum of INR 15 lakh. Just like tax-saving fixed deposits of banks, SCSS comes with a lock-in tenure of 5 years. Now let's assume that the current interest rate of SCSS will remain locked in for the next 5 years and a senior citizen is ready to invest ₹15 lakh in the scheme for 5 years.
Therefore, a deposit of ₹15 lakh would earn ₹27,750 as a quarterly interest payment at the current interest rate of 7.4% and the annual interest payment will be ₹111,000. Hence at maturity, the account holder will get a total interest amount of ₹5,55,000 and the total maturity amount including principal will be ₹20,55,000. The interest amount under SCSS is payable on a quarterly basis and is applicable from the date of deposit to the following dates: March 31, June 30, September 30, and December 31. The rate of interest that was in effect on the day of the deposit remains locked in for the tenure of 5 years, apart from the fact that the interest rates on small savings schemes are revised on a quarterly basis by the Government of India.
Impact of joint investment in SCSS
The aforementioned illustration only represents one investment that a person makes. However, SCSS also permits joint deposits, thus a senior citizen and his spouse can register a joint account. However, only the first account holder is accountable for the whole deposit amount in a joint account. The maximum investment cap of ₹15 lakh will be doubled to ₹30 lakh in joint account cases. In this instance, the elderly couple's overall yearly interest from each of their SCSS accounts would be ( ₹111,000x2 = ₹222,000). The total amount (principal+interest) that can be withdrawn at maturity would be ₹41,10,000. Hence, the joint couple would get a yearly risk-free income of ₹2.22 lakh by investing in SCSS. “In case spouse is a joint holder or a sole nominee, account can be continued till maturity if spouse is eligible to open SCSS account and not have another SCSS Account," India Post said on its website.
Key takeaways of SCSS
Investments made under this plan are eligible for the tax deductions provided by section 80C of the 1961 Income Tax Act. If the overall interest earned across all SCSS accounts surpasses Rs. 50,000 in a fiscal year, the interest is taxable, and TDS at the appropriate rate should be deducted from the total interest earned. If form 15 G/15H is submitted and collected interest income does not exceed the permissible threshold, no TDS will be applied to the account holder. After five years from the date of account opening, an SCSS account may be closed, but the account holder may choose to keep the account open for an additional three years from the date of maturity.
Within a year of maturity, an SCSS account can be extended, and the extended account will continue to accrue interest at the rate that was in operation on the maturity date. SCSS also permits premature withdrawals at any time post the account’s active date. For instance, if an account is discontinued before one year, no interest would be payable; If the account is terminated after one year but before two years from the date of opening, 1.5% of the principal will be deducted. If the account is closed after two years but before five years from the date of account establishment, 1% of the principal will be deducted by the responsible post office. Nevertheless, an extended account may be closed or liquidated after a year from the date of extension without incurring any penalties.
