Investment and Taxation of Senior Citizens Saving Scheme & Sukanya Samridhi Yojana
There are two investment options which are still not explored by the taxpayers despite higher interest rates as compared to bank FDR. These are Sukanya Samriddhi Yojana (SSY) & Senior Citizen Saving Scheme (SCSS). Let us know more about it. There was a ceiling of Rs. 15 lakhs for investment in the SCSS which has been enhanced to Rs. 30 lakhs by the Budget-2023.
SENIOR CITIZEN SAVING SCHEME (SCSS): AN INVESTMENT CUM TAX SAVING OPTION FOR SENIOR CITIZEN
The five-year SCSS Government sponsored scheme was launched to provide safety, security, regularity of income, risk free investment to the senior citizens. An individual of the Age of 60 years or more may open the account in any post office or designated branches of nationalized banks & one private sector bank. An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under VRS can also open an account subject to the condition that the A/c is opened within one month of receipt of retirement benefits & amount should not exceed the amount of retirement benefits. Similarly, the retired personnel of Defense Services (excluding Civilian Defense Employees) will be eligible to subscribe under the scheme irrespective of the age limit of 60 years.
The investment is eligible for an interest rate of 8.20% p.a., payable quarterly. There shall be only one deposit in the account which could be in multiples of Rs. 1,000/. Maximum amount of investment under the scheme is now restricted to Rs. 30 Lacs. A depositor may operate more than one account in individual capacity or jointly with spouse (husband/wife) subject to overall maximum cap of Rs. 30 Lacs. Account can be opened by cash for the amount below Rs. 1 Lacs & and by cheque if the deposit amount exceeds Rs. 1 Lacs. Maturity period is 5 years. After maturity, the account can be extended for further 3 years within one year of the maturity by giving application in prescribed format. In such cases, accounts can be closed at any time after one year of extended period.
Premature Withdrawals:
a] Premature withdrawal is allowed only on completion of one year. In case of premature closure there would be deduction @ 1.50% & after 2 years @ 1% of the deposit amount.
b] If the deposit is withdrawn within a period of 5 years of its deposit, the amount withdrawn would be taxable in the year of withdrawals. It is better not to invest if the investment could not be kept untouched till 5 years.
Tax benefit, Taxability of Interest & TDS:
- Interest income is not tax free.
- Interest would also be subject to Tax Deduction at Source (TDS) if the interest amount is more than Rs. 10,000/- p.a.
- Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act, 1961 subject to overall maximum cap of Rs. 1.50 Lacs.
SUKANYA SAMRIDDHI YOJANA (SSY): NEW SCHEME FOR A GIRL CHILD IN INDIA
SSY was launched as a part of the ‘Beti Bachao Beti Padhao’ campaign of the Central Government to provide financial security for Girl children. The account can be opened by the parent or legal guardian in the name of a girl child from birth till she attains the age of 10 years. For one girl, only one account is permissible. Natural or legal guardian of a girl child can be allowed to open the account for two girl children only. The third account in the name of the girl child can be opened in the event of birth of twin girls, as second birth or if the first birth itself results in three girl children. This account can also be opened for adopted daughters. It can be done at Post Offices or authorized Banks (SBI, PNB, BOB, BOI, Canara Bank, Andhra Bank, UCO Bank, and Allahabad Bank, to name a few).
Investment Limit:
Minimum Rs. 1,000/- can be invested in one financial year. Maximum investment of Rs. 1,50,000/- can be made in one financial year. Any excess amount deposited will not earn any interest & such excess amount can be withdrawn anytime. Deposits in an account can be made till completion of 15 years, from the date of opening of the account. The account shall mature on completion of 21 years. The girl child strictly has to be an Indian resident throughout the tenure of the scheme. In case if the residency status of the girl child changes in the interim, no interest shall be payable from the date of change and the account will be closed prematurely.
Interest Rate:
SSY offers an interest rate of 8% at present. Interest rate is regulated by the Ministry of Finance from time to time & can be reset every quarter, similar to other small savings schemes.
Withdrawal Facility:
To meet the financial requirements of the account holder for the purpose of higher education and marriage, account holders can avail partial withdrawal facility after attaining 18 years of age. Earlier, one could withdraw 50% of the accumulated amount for education purposes, provided the girl is 18 year of age or passed 10th Standard. Now, the withdrawal will be allowed on the basis of the actual fees payable. It can either be withdrawn as a lump sum or in course of five annual installments. In case of marriage, the accumulated sum can be withdrawn one month before or three months after the date of marriage. At that time, it is imperative to provide age proof in order to prove that the child is not below 18 years of age.
Premature closure:
Premature closure is not allowed now before the completion of five years. But redemption is allowed in cases of extreme compassionate grounds such as medical support in life-threatening diseases of the A/c holder or death of the guardian. In such instances, interest paid will be equivalent to post office savings.
Tax Benefits:
- Investment in SSY is eligible for deduction u/s 80C of the Income Tax Act subject to overall cap of Rs. 1.50 Lakh U/s 80C.
- SSY operates under E-E-E Model i.e., Principal, interest and withdrawals, all are exempt from income tax.
Conclusion:
Since both the investment options discussed above are Government sponsored, safe and secured and offer considerably higher interest rates as compared to the Bank FDR of banks, one may plan for it. The option may further be explored in view of the fact that recently the taxation of Debt Mutual Fund has also been brought at par with other regular schemes of the taxpayers. Further, considering the fact that the interest income of SSY is exempt from tax, parents with a girl child may opt for SSY as one of the finest investment avenues.
[Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
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Regards,
CA Naresh Jakhotia
Partner – M/s. SSRPN & Co.
10, Laxmi Vyankatesh Apartment
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Nagpur-440008.
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