Tax-free Senior Citizens Savings Scheme (SCSS): SBI Research proposal

Rajeev Kumar
tax free scss account

SCSS Account: SBI Research has proposed that the government should make the Senior Citizens Savings Scheme (SCSS) completely tax-free for the benefit of senior citizens. Currently, SCSS provides 8.6 per cent interest with a maximum deposit limit of Rs 15 lakh. Senior citizens can make only one deposit in the account in multiple of Rs 1000. The SCSS account can be opened by an individual of 60 years or more.

SCSS account is also open to individuals who have retired on superannuation or taken VRS at the age of 55 or more but less than 60 years. Such persons need to open the account within one month of receiving the retirement benefits, provided the amount deposited in SCSS account is not more than his/her retirement benefits. Senior citizens are allowed to operate more than one SCSS account individually or jointly with spouse.

One drawback of the scheme is that full interest earned on deposits in SCSS account is not tax-free, even as the investment qualifies for benefits under Section 80C of Income Tax Act. TDS is deducted when the interest amount earned on deposits under SCSS is more than Rs 10,000 in a year. In its latest Ecowrap report, SBI Research has proposed that the government can make SCSS completely tax-free and it won’t have much impact on the fiscal deposit.

The Ecowrap report says: "Government has an excellent scheme for senior citizens. Under Senior Citizens Savings Scheme (SCSS), a senior citizen can deposit Rs 15 lakh and the current interest rate is 8.6%. However, the interest on SCSS is fully taxable which is a major drawback of this scheme (the interest amount for Rs 1 lakh deposit for 5 years is around Rs 51,000 which is taxable)."

"The Mar'18 outstanding under SCSS was Rs 38,662 crore. It will be fair if such amount is given full tax rebate as the revenue foregone by the Government could be only Rs 3092 crore, that will have the minimal 2 bps impact on Government fiscal deficit," it adds.