Senior Citizens’ Savings Scheme: Disadvantages of SCSS you should know before investing The Senior Citizens' Saving Scheme (SCSS) also provides tax benefits under Section 80C and allows for early withdrawals
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Senior Citizen Savings Scheme investment limit hiked to Rs 30 lakh: Govt issues notificationUnder the Senior Citizen Savings Scheme (SCSS), the investment cap was increased from Rs 15 lakh to Rs 30 lakh as suggested in Budget 2023. SCSS is one of the popular investment avenues for senior citizens. Assured income, protection of capital and regular payouts is what makes it attractive. The Senior Citizens' Saving Scheme (SCSS) also provides tax benefits under Section 80C and allows for early withdrawals. While these points may attract the investors, here are some disadvantages which should be considered before investing.Liquidity
The SCSS account has a 5-year term; however, the amount can be withdrawn at any time after it is opened, but penalties will apply. So, in the event of an emergency or a financial need, the investor must pay a penalty for premature withdrawal.
Here are the charges which will be applicable
Account can be prematurely closed any time after date of opening.
(ii) If account closed before 1 year, no interest will be payable and if any interest paid in account shall be recovered from principle.
(iii) If account closed after 1 year but before 2 year from the date of opening, an amount equal to 1.5 % will be deducted from principal amount.
(iv) If account closed after 2 year but before 5 year from the date of opening, an amount equal to 1 % will be deducted from principal amount.
(v) Extended account can be closed after the expiry of one year from the date of extension of the account without any deduction.
Fixed Interest Rates
The Senior Citizen Savings Scheme's interest rates are predetermined by the government every quarter and fixed at the time of investment. Throughout the investment's lifetime, they don't change. This implies that investors may lose out on higher interest rates if market interest rates rise after the investment is made.Interest rate comparison
While other banks such as DCB offers an interest rate of 8.50 per cent to senior citizens for deposits maturing between 15 months and 24 months for amounts below Rs 2 crore. IDFC First Bank offers the highest interest rate of 8.25 per cent on FDs maturing in 18 months and one day to 3 years. Bandhan Bank offers the best rate of 8.50 per cent to senior citizens on FDs maturing in 600 days. While these banks offer much higher interest rate, note that these deposits do not fall under 80C of IT act.
Tax implications
Senior Citizens Savings Scheme (SCSS) offers tax benefits on the investment made. The investment under the scheme is eligible for deduction under Section 80C of the Income Tax Act. Do note that Section 80C tax benefit is available in the old tax regime. If the senior citizen opts for the new tax regime, then Section 80C benefit cannot be claimed.
The interest earned is taxable in the investor's hands. However, this deduction is part of the overall maximum of Rs. 1.5 lakhs under Section 80C. TDS will be deducted from the interest accrued in a SCSS account if the total interest exceeds Rs 50,000 in a fiscal year.
Eligibility
People in their 30s and 40s who want to take advantage of the scheme are not eligible.
The benefits are only available to people over the age of 60. Defence employees aged 50 to 60, or civilian employees aged 55 to 60, can participate in the scheme if they have selected for the Voluntary Retirement Scheme (VRS) or superannuation.
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This story originally appeared on: India Times - Author:Faqs of Insurances
