Is SCSS still as effective as it was in 2004?

29 November, 2023 0 Comments

            Is SCSS still as effective as it was in 2004?

You are fit as a fiddle, but as you reach the sunset in your career, the retirement thoughts and the realisation to plan your retirement kick in. Without much ado, you start consulting and have in-depth discussions with your peers or family. After all the words of advice and diligent research, one common thing that gets affixed in your mind is building a strong retirement corpus.

Retirement corpus sets a solid foundation for your healthy retirement. But, do you know how much money you will need considering the time frame of your retirement? In the present scenario, the retirement calculators give individuals a fair idea of the requirement of the retirement corpus depending on the expenses and time of retirement. Once you have established the retirement corpus, it becomes your onus to achieve it.

Juggling among the different classes of assets and investments and benefitting from the power of compounding, you tend to move forward to attain the retirement corpus. But is it possible every time? What if your planned investments do not give the expected returns and you fall short of the retirement fund? This might force you to continue in your workplace and delay your retirement, but if you have been able to raise your retirement corpus effectively and have not achieved your predefined goal, you can still have a fixed regular income during your retirement period. Senior Citizens Savings Scheme can be one of the ways of giving you a fixed income in your retirement.

What is SCSS?

Senior Citizens Savings Scheme is a government-backed retirement scheme for 60 years and above Indian citizens, NRI’s & HUFs. As a debt instrument, SCSS has been the most lucrative and safe investment avenue for the retired in India. Backed by the Government of India, this scheme was initiated in the year 2004 to provide a regular source of fixed income to senior citizens.

In the Senior Citizen Savings Scheme (SCSS), the investment options are designed to cater to a range of preferences and financial capabilities. The maximum allowable investment in the SCSS is capped at Rs. 30 Lakh and the minimum investment amount stands at just Rs. 1000, making the scheme accessible to individuals, regardless of their financial means. This flexibility ensures that even those with modest savings can benefit from it.

Moreover, the SCSS provides the option to invest individually or jointly. This means you can choose to invest on your own or with another person, such as a family member or spouse, to further diversify and maximise the benefits of this savings scheme.

The fading benefit of SCSS?

The interest payout in SCSS is made quarterly, as the Government of India decides the quarterly interest rates. As of the last quarter, the interest rate was decided at 8.2%. (July to September (Q2 FY 2023-24))

The Senior Citizen Savings Scheme (SCSS) interest rate has exhibited a dynamic history, with fluctuations from 2004 to May 2023. As the scheme rolled out in 2004, the interest rate remained constant at 9% till 2014. However, it underwent reductions, first to 8.6% from April 1, 2016, to September 30, 2016, and then further to 8.5% from October 1, 2016, to March 31, 2017.

Starting from the second quarter of 2019, the SCSS interest rate saw a gradual decline. It was lowered to 8.6% for the period spanning from July 1, 2019, to March 31, 2020. The year 2020 brought unprecedented challenges due to the pandemic, resulting in a notable reduction in the SCSS Interest Rate to 7.4%, marking the lowest rate since 2004.

Subsequently, the SCSS Interest Rate witnessed a resurgence, with the Government revising it to 8% for the period between October 1, 2022, and March 31, 2023. Currently, the rate stands at 8.2%, and senior citizens are optimistic about the potential for further rate increases in the months to come.

Historical Interest Rates for Senior Citizen Savings Scheme


The Future Ahead

An increase in the corpus limit of SCSS from INR 15 lakh to INR 30 lakh will benefit you if you are looking for a fixed and guaranteed source of income in your retirement. With the possibility of other age-related problems occurring, you should tread wearily. Financial abundance or steady income can at least create insulation against unexpected risks or emergencies that can emerge, given the age.

The Senior Citizen Saving Scheme (SCSS) offers tax benefits up to INR 1.5 lakhs in a financial year under Section 80C. However, the interest on investment is taxable as per the investor's tax slab rate. Since SCSS is a scheme backed by the government, the interest earned on the investment is exempt from tax deducted at source (TDS) up to Rs. 50,000 in a financial year. If the interest earned exceeds Rs. 50,000 in a financial year, TDS will be applicable on the excess amount.

Apart from the tax benefit, SCSS allows you to have multiple accounts considering you do not exceed the amount value of 30 lakhs individually. Supposedly, you and your spouse invest in different interest rates up to a limit of 60 lakhs jointly, you can still make use of the fixed interest income, and it is fairly higher than fixed deposits that stand between 6.2% to 8.75% for a five year period.

Irrespective of the falling interest rate, this scheme has been one of the most favourable investment avenues and it would remain the same in the future, provided that interest and tax benefits continue. SCSS is an ideal source of corpus protection and income generation. However, it is always advisable to consult a financial advisor before investing as it is necessary to align your investment goals with your need and vision. Hence, plan your investment with an advisor who understands your retirement financial needs.