Top 5 disadvantages of Senior Citizen Savings Scheme (SCSS): While there are several advantages of investing in Senior Citizen Savings Scheme (SCSS) for senior citizens, there are some disadvantages or limitations that you should also know before investing in this scheme offered by banks and Post Office in India.
Also Read- Can you buy iPhone 14 under Rs 40,000? Amazon Great Summer Sale on Apple device decoded
TDS on SCSS interest: Unlike schemes like PPF in which everything is tax-free, the interest earned from SCSS deposits becomes taxable if it exceeds the Rs 50,000 limit in a financial year.
As per the information on the Post Office website, SCSS interest income becomes taxable if the total interest in all SCSS accounts exceeds Rs.50,000 in a financial year. Currently, the SCSS deposit limit is Rs 30 lakh. If you invest this amount, the quarterly interest will be Rs 61,500 and the annual interest will be Rs 2,46,000 (at 8.2% interest). Since this amount is above the Rs 50,000 limit, TDS will be deducted at a specified rate.
Read More:– Don’t forget to pre-validate bank account before filing ITR
However, no TDS will be levied if the accountholder submits form 15 G/15H and the accrued interest is not above the Rs 50,000 limit.
2. Fixed interest rate: While the current interest rate of 8.2% has made the SCSS account a very attractive investment option for senior citizens, those who opened the account earlier at a lower rate are at a disadvantage. To enjoy the current high rate, they can close the old SCSS account and open a new account. But closing an SCSS account prematurely attracts some charges.
Also Read– Income Tax Calendar 2023: Full list of due dates and activities to be completed by December
For instance, if you close the SCSS account before 1 year, no interest will be paid. If you have already received the interest, it will be deducted from the principal amount on premature closure before completion of 1 year from the date of opening the account. Similarly, if you close the account after 1 year but before 2 years from the date of opening, an amount equal to 1.5% will be deducted from the principal amount. In case of premature closure after 2 years and before 5 years, 1% amount from the principal amount will be deducted.
3. No interest on unclaimed interest income: SCSS accountholders have to claim their interest income every quarter. If you do not claim the interest payable every quarter then such amount will not earn any additional interest. “If the interest payable every quarter is not claimed by an account holder, such interest shall not earn additional interest,” says Senior Citizen Savings Scheme Rules 2019.
4. Age Limit: The SCSS account opening facility is available only senior citizens above 60 years. Private sector employees who want to retire early cannot avail the benefit of the scheme.
5. Fixed Tenure: There is a lock-in period of 5 years for investments made in SCSS account. It can be further extended by another 3 years. The lock-in period may make it difficult for some depositors to plan as per their goals or for those who may want to invest only for 2-3 years. Further, some investors may also face liquidity crunch because of the lock-in period and the specified penalties on premature withdrawal.
Also Read– Customers Of This Bank Can Submit Their Form 15/H For Free Via Doorstep Banking
End note
SCSS is still one of the best schemes for eligible investors who are looking to earn guaranteed interest income or returns. The current rate of 8.2% interest on SCSS deposits makes the scheme better than 5-year FD schemes offered by banks. Moreover, investments up to Rs 1.5 lakh in a year in the SCSS account qualify for deduction under Section 80C. Senior citizens, who are not making any tax-saving investment, can avail of this benefit along with guaranteed quarterly interest income to support their post-retirement lives.
