Senior Citizen Savings Scheme: With the recent hike in the SCSS interest rate by the government to 8.2%, elderly people now have the opportunity to avail an additional 0.8% interest. According to money experts, senior citizens can take advantage of higher interest rate by closing the previous scss account After assessing whether the penalty for closure of the old account is less than the additional interest earned in the new account.
“After completion of one year, the senior individual can prematurely withdraw from SCSS. Vineet Khandare, CEO and founder of MyFundBazaar said, if the withdrawal is made after the lapse of one year but before the lapse of two years from the date of deposit, a penalty of 1.50% of the deposit amount will be levied.
As per SCSS rules, the account can be closed before the maturity period of 5 years, but premature closure will attract penalty. Clear’s Archit Gupta said that the account can be closed before the maturity period of 5 years, but the penalty has to be paid.
SCSS rules on premature closure of account
1) No interest will be paid if the account is closed within the first year of opening
2) If the account is closed after one year but before two years, 1.5% of the principal amount will be deducted.
3) If the account is closed after two years but before five years, 1% of the principal amount will be deducted.
In which scenarios, would it be beneficial to switch to a new SCSS account?
For example, if a senior citizen Investment 10 lakh in February 2022 at 7.4% interest rate in SCSS account, quarterly interest 18,500. If they want to switch to a new account with 8.2% interest rate, they will have to pay a penalty of 1.5% of the principal amount, which is 15,000. In this case, switching to a new account would be beneficial as the gains outweigh the penalty for premature withdrawal. However, one should also consider the tax implications before making the switch, said Archit Gupta.
What if the senior citizen has availed tax benefits on the SCSS account which he wants to close?
Individuals investing in SCSS can avail tax deductions 1.5 lakh under section 80C. “If a senior citizen has already claimed this deduction and decides to prematurely close the account, he will have to pay tax on the amount already exempted as the maturity period of the account is 5 years. To avoid losing tax benefits, senior citizens can maintain 1.5 Lakh in old account and withdraw only above amount 1.5 lakh,” Gupta explained.
SCSS interest rate has been increased from 8 per cent to 8.2 per cent for the April-June quarter. Once invested, the interest rate remains constant throughout the tenure. Presenting the Union Budget 2023, Finance Minister Nirmala Sitharaman announced an increase in the deposit limit under SCSS 30 lakhs, from 15 lakh for a single account holder from this financial year.
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