best option for senior citizens

9/14/2015 http://epaperbeta.timesofindia.com/Article.aspx?eid=31805&articlexml=Bestoptionforseniorcitizens14092015012007 1/3 The Times of India Title : Best option for senior citizens Author : PREETI KULKARNI Location : Article Date : 09/14/2015 The Senior Citizens' Saving Scheme offers everything that retired investors need It has everything that a senior citizen investor can ask for: assured returns, safety of capital and regular payouts. The Senior Citizens' Saving Scheme (SCSS) also offers tax benefits under Sec 80C and allows premature withdrawals. At the same time, there are a few problems that need to be fixed. For instance, the income from the scheme is subject to TDS. Delhibased V .K. Mahajan and his wife Madhu (see picture) are happy their investment fetches them a regular income, but miffed that the interest earned is taxable. Let us look at the salient features of the scheme. Eligibility The minimum age at entry is 60 years.But this can be relaxed to 55 years in case one has opted for voluntary retirement.However, VRS takers must open the account within a month of receiving their retirement benefits. Also, the amount invested cannot exceed the value of the retirement corpus. Investors who satisfy these conditions can open an account at any post office or at designated branches of 24 PSU banks and ICICI Bank. Investment limit An individual cannot invest more than `15 lakh in the SCSS. Deposits can be made in multiples of `1,000. An individual can open more than one account by opting for a joint account with his spouse.However, the investment limit of `15 lakh applies to all accounts collectively . That is, an individual's total investment in SCSS cannot breach the `15lakh ceiling. Rate of interest The interest rate of the SCSS is market linked and 100 basis points above the 5year government bond yield. The rate for the current financial year is 9.3%. An investment of `15 lakh will yield a quarterly income of `34,875 (`11,625 per month). Once an investor locks in, the rate remains unchanged till the scheme matures. The big draw for investors is that the scheme is managed by the government and offers assured returns. The only risk is the returns could be lower in future as bond yields decline. Interest payment The interest is paid out every quarter on fixed datesthe first working day of April, July, October and January . This is irrespective of the date of investment.The quarterly payment is useful for retirees who need a stream of regular income for their living expenses. However, it may not be beneficial for those who don't immediately need such income. The quarterly payouts mean they lose the benefits of compounding. Tenure and foreclosure The SCSS has a tenure of five years, but it can be extended for three years after the scheme matures. In case of an emergency , an investor can foreclose the account after a year. If the account is closed before two years, the penalty is 1.5%. After two years, the penalty is 1%. There is no penalty if the account is closed in the extended period after the mandatory five years. Taxation The taxation of the SCSS is a mixed bag for investors. While investments are eligible for tax deduction under Section 80C, the interest earned from the SCSS is fully taxable as income. The income is also subjected to tax deduction at source (TDS) if it exceeds `10,000 in a financial year.This is a major point of contention for senior citizens who may not have a taxable income but still have to file their tax returns to get back the excess TDS.

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Best option for senior citizens

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9/14/2015

http://epaperbeta.timesofindia.com/Article.aspx?eid=31805&articlexml=Bestoptionforseniorcitizens14092015012007 1/3

The Times of IndiaTitle : Best option for senior citizensAuthor : PREETI KULKARNILocation :Article Date : 09/14/2015

The Senior Citizens' Saving Scheme offers everything that retired investors needIt has everything that a senior citizen investor can ask for: assured returns, safety of capital and regular payouts.

The Senior Citizens' Saving Scheme (SCSS) also offers tax benefits under Sec 80C and allows premature withdrawals. At the same time,there are a few problems that need to be fixed. For instance, the income from the scheme is subject to TDS. Delhibased V .K. Mahajanand his wife Madhu (see picture) are happy their investment fetches them a regular income, but miffed that the interest earned is taxable.Let us look at the salient features of the scheme.

Eligibility

The minimum age at entry is 60 years.But this can be relaxed to 55 years in case one has opted for voluntary retirement.However, VRStakers must open the account within a month of receiving their retirement benefits. Also, the amount invested cannot exceed the value ofthe retirement corpus. Investors who satisfy these conditions can open an account at any post office or at designated branches of 24 PSUbanks and ICICI Bank.

Investment limit

An individual cannot invest more than `15 lakh in the SCSS. Deposits can be made in multiples of `1,000. An individual can open morethan one account by opting for a joint account with his spouse.However, the investment limit of `15 lakh applies to all accountscollectively . That is, an individual's total investment in SCSS cannot breach the `15lakh ceiling.

Rate of interest

The interest rate of the SCSS is market linked and 100 basis points above the 5year government bond yield. The rate for the currentfinancial year is 9.3%. An investment of `15 lakh will yield a quarterly income of `34,875 (`11,625 per month). Once an investor locks in,the rate remains unchanged till the scheme matures. The big draw for investors is that the scheme is managed by the government andoffers assured returns. The only risk is the returns could be lower in future as bond yields decline.

Interest payment

The interest is paid out every quarter on fixed datesthe first working day of April, July, October and January . This is irrespective of thedate of investment.The quarterly payment is useful for retirees who need a stream of regular income for their living expenses. However, itmay not be beneficial for those who don't immediately need such income. The quarterly payouts mean they lose the benefits ofcompounding.

Tenure and foreclosure

The SCSS has a tenure of five years, but it can be extended for three years after the scheme matures. In case of an emergency , an investorcan foreclose the account after a year. If the account is closed before two years, the penalty is 1.5%. After two years, the penalty is 1%.There is no penalty if the account is closed in the extended period after the mandatory five years.

Taxation

The taxation of the SCSS is a mixed bag for investors. While investments are eligible for tax deduction under Section 80C, the interestearned from the SCSS is fully taxable as income. The income is also subjected to tax deduction at source (TDS) if it exceeds `10,000 in afinancial year.This is a major point of contention for senior citizens who may not have a taxable income but still have to file their taxreturns to get back the excess TDS.