Senior Citizen Savings Scheme (SCSS)
Government backed Senior Citizen Savings Scheme (SCSS) is one of the most preferred investment options among retirees. Anyone who is 60 years of age or above can invest in this scheme. Retirees above 55 years but below 60 years of age can also opt for this scheme if they invest within one month of receiving retirement benefits.
The minimum investment limit is Rs 1,000 while the maximum investment can go up to Rs 15 lakh. It has a tenure of five years, but it can be extended for another three years on maturity.
For investments made in the June-September quarter of FY 2022-23, the Senior Citizen Savings Scheme offers an interest rate of 7.4 per cent per annum. Interest is payable every quarter and is fully taxable. This plan does not pay any interest on maturity. Also, once invested, the interest rate remains the same throughout the tenure. However, if an investor extends the scheme after maturity, he will earn interest as per the rate of interest applicable to the scheme on the date of extension.
Premature withdrawal option with penalty is allowed after completion of one year from the date of account opening. For premature withdrawal after one year, an amount equal to 1.5 per cent of the deposit amount is deducted as penalty. In case of premature withdrawal after the second year or so, an amount equal to 1 per cent of the deposit amount is deducted.
Senior citizens can claim tax deduction for investment in this scheme under Section 80C of the Income Tax Act, 1961.
Pradhan Mantri Vaya Vandana Yojana (PMVVV)
Launched in 2017, Pradhan Mantri Vaya Vandana Yojana (PMVVY) is an investment scheme that provides regular income to senior citizens and retirees. Individuals above 60 years of age can invest in this scheme. The tenure of Pradhan Mantri Vaya Vandana Yojana is 10 years.
Currently, the Pradhan Mantri Vaya Vandana Yojana offers an interest rate of 7.4 per cent per annum. The interest rate is revised at the beginning of each financial year in line with the interest rate of the Senior Citizens Savings Scheme. Hence, any change in the interest rate of Senior Citizens Savings Scheme will also affect the interest rate offered on PMVVY.
For customers, the interest rate remains the same for the entire tenure of 10 years.
The scheme provides pension on monthly, quarterly, half-yearly and yearly basis. The pension amount will depend on how much the subscriber invests while opting for the plan. Senior citizens can invest a minimum of Rs 1,56,658 and a maximum of Rs 15 lakh in PMVVY.
For example, a retired person investing Rs 3 lakh in the scheme will get an annual pension of Rs 24,900.
A senior citizen can take a loan up to a maximum of 75 per cent of the amount invested after completing three years. Loan interest will be recovered from the pension amount payable under the scheme.
Premature exit option is available in exceptional circumstances like serious or terminal illness of self or spouse. In such a situation, people will get 98 percent of the purchase price back. This scheme does not provide any tax benefits.
The last date to invest in this scheme is 31 March 2023.
The pension received is fully taxable in the hands of a senior citizen.
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bank fixed deposit
Fixed returns and low risk as compared to other investment avenues like equity instruments have made bank fixed deposits (FDs) an extremely popular investment option among senior citizens. Bank fixed deposit interest rates depend on various factors such as RBI’s policy rate, macroeconomic conditions etc. Most of the banks usually offer an additional interest of 0.50 per cent to senior citizens over and above the normal interest rates for various deposit tenures. ,
There are fixed deposits that pay interest to investors at regular intervals – monthly, quarterly, half-yearly or annually. Senior citizens will get the option to choose the interest payment tenure while opening their fixed deposits. It should be noted that the interest rate per annum is higher on annual payments as compared to monthly pay-outs.
Banks also offer tax saving FDs, which have a lock-in period of five years. Customers for investments in tax-saving fixed deposits are eligible to claim income tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961.
Interest is taxable at the rate of income tax applicable to investors. Further, if the interest income on all bank FDs exceeds Rs 50,000 in a financial year in case of senior citizens, banks will deduct TDS at 10 per cent.
Special Fixed Deposits with Banks
Many banks offer special fixed deposits of five years and above to senior citizens. SBI Wecare FD and ICICI Bank Golden Year FDs are just a few examples of special deposits available to senior citizens.
SBI Wecare FD Offers an additional interest of 0.30 per cent (over the existing additional 50 basis points offered to senior citizens) on retail fixed deposits of five years and above. This special scheme is available till 31st March 2023.
Under ICICI Golden Years FD, senior citizens can earn an additional interest of 0.20 per cent per annum for fixed deposits of five years and above. The additional interest rate will be applicable on both fresh deposits and renewals. This special deposit amount was earlier extended till 7 October 2022.
Though these particular FDs offer slightly higher interest rates, they are subject to certain conditions regarding premature withdrawal.
RBI Floating Rate Saving Bonds 2020 (Taxable)
Reserve Bank of India (RBI) Floating Rate Saving Bonds 2020 (Taxable), popularly known as RBI 7.15% Bonds, is another popular investment option among senior citizens. They are called floating-rate bonds because the interest rate on these bonds is reset every six months. The interest rate on floating rate bonds is linked to the National Savings Certificate (NSC). They will offer 0.35 per cent more than the existing NSC interest rate.
RBI Floating Rate Savings Bonds Currently offer an interest rate of 7.15 per annum. The interest is reset on 1 January and 1 July every year. In addition, interest is paid at half-yearly intervals on 1st January and 1st July of every year for the last 6 months.
The minimum investment limit is Rs 1,000 and there is no maximum investment limit.
The tenure of these bonds is seven years. However, premature exit option is allowed for investors aged 60 years and above. For a senior citizen in the age group of 60 to 70 years, the lock-in period is six years. The lock-in period is five years if the investor is in the age group of 70-80 and four years if he is 80 or above.
Remember that the interest rate on these bonds is fully taxable.
Post Office Monthly Income Scheme (POMIS)
Government backed Post Office Monthly Income Scheme (POMIS) provides fixed monthly income to the investors. This scheme is open to all but is preferred by senior citizens wishing to get monthly income.
The minimum investment limit has been fixed at Rs 1,000. Senior citizens can invest a maximum of Rs 4.5 lakh in a single account and up to Rs 9 lakh in a joint account.
Currently, the Post Office Monthly Income Scheme offers an interest rate of 6.6 per cent per annum. Interest is credited at the end of every month. The interest rate is reviewed by the government every quarter. However, once invested, it remains the same throughout the tenure of five years.
Premature withdrawal facility with penalty is available after one year. If investors make withdrawals before three years, a fee of 2 per cent will be applicable on the deposit amount. There will be a deduction of 1 per cent on deposits on closure after three years. It does not provide any income tax benefit. The interest received is fully taxable.
Post Office Fixed Deposit Account (POTD)
Post Office Time Deposit Account (POTD) is one of the most popular small savings schemes offered by India Post. The period of deposit under post office fixed deposit can be one, two, three or five years. An investor can open an account with a minimum of Rs 1,000 and there is no maximum investment limit. These POTDs are also open for investment for non-senior citizens.
Interest on post office fixed deposit account is calculated quarterly but payable annually. For the July to September quarter of FY23, POTD offers an interest rate of 5.5 per cent on fixed deposits with tenors of one to three years. The five-year post office fixed deposit account is offering an interest rate of 6.7 per cent per annum on investments made till September 30, 2022. The Finance Ministry reviews the interest rates of small savings schemes every quarter.
On maturity, the investors will have the option to carry forward the account for another tenure for which the account was initially opened.
If a fixed deposit account is closed within one year, senior citizens will receive the rate of interest applicable to the post office savings account at that time. For premature closure of fixed deposit accounts after one year, the interest will be 2 percent less than the fixed deposit interest rates for full years (i.e., one, two, or three years). For partial tenures of less than one year such as months, post office savings interest rates will be applicable.
For a post office time deposit account of 5 years, senior citizens can claim tax deduction under section 80C of the Income Tax Act, 1961.