Ought to senior residents shut SCSS accounts and put money into new ones?

Senior Residents Financial savings Scheme: With the latest hike of the SCSS rate of interest to eight.2% by the Authorities, aged folks now have the chance to learn from the extra 0.8% curiosity. Based on cash specialists, senior residents can take profit from the upper rate of interest by closing the earlier SCSS account after assessing whether or not the penalty for closing an previous account is lower than the extra curiosity earned within the new account.

“Following the completion of a 12 months, the senior particular person might prematurely withdraw from SCSS. If a withdrawal is taken after a 12 months has handed however earlier than a interval of two years has handed from the date of the deposit, a penalty of 1.50% of the deposit will likely be assessed,” mentioned Vinit Khandare, CEO and Founder, MyFundBazaar.

Based on the SCSS guidelines, an account may be closed earlier than the 5-year maturity interval, however untimely closure will incur a penalty. The account may be closed earlier than the 5-year maturity interval, however the penalties should be paid, mentioned Archit Gupta of Clear.

SCSS guidelines on untimely account closure

1)If the account is closed throughout the first 12 months of opening, no curiosity will likely be paid

2)If the account is closed after one 12 months however earlier than two years, a deduction of 1.5% of the principal quantity will likely be made.

3)If the account is closed after two years however earlier than 5 years, a deduction of 1% of the principal quantity will likely be made.

By which state of affairs, switching to a brand new SCSS account will likely be useful?

For instance, if a senior citizen invested 10 lakh in an SCSS account in February 2022 at a 7.4% rate of interest, the quarterly curiosity could be 18,500. In the event that they wish to change to a brand new account with an 8.2% rate of interest, they must pay a penalty of 1.5% of the principal quantity, which is 15,000. On this case, switching to the brand new account could be useful as a result of the advantages outweigh the penalty for untimely withdrawal. Nevertheless, one also needs to think about the tax implications earlier than making the change, mentioned Archit Gupta.

What if the senior citizen availed tax-benefit on the SCSS account they wish to shut?

People who put money into SCSS can avail of a tax deduction of as much as 1.5 lakhs underneath Part 80C. “If a senior citizen has already claimed this deduction and decides to prematurely shut the account, they must pay tax on the beforehand exempted quantity because the account has a maturity interval of 5 years. To keep away from shedding the tax profit, senior residents can retain 1.5 lakh within the previous account and solely withdraw the quantity in extra of 1.5 lakhs,” defined Gupta.

The rate of interest of SCSS has been hiked from 8 per cent to eight.2 per cent for the April-June quarter. As soon as the funding is completed the rate of interest stays fastened all through the tenure. Whereas presenting Union Price range 2023, Finance Minister Nirmala Sitharaman introduced a rise within the deposit restrict underneath SCSS to 30 lakh, from 15 lakh for a single account holder from this monetary 12 months.

Disclaimer: The views and proposals made above are these of particular person analysts, and never of Mint. We advise traders to verify with licensed specialists earlier than taking any funding choices.


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