I am 73 and have FDs in banks worth Rs 20 lakh. Should I opt for post office Senior Citizen Savings Scheme (SCSS)?

I am 73. I have FDs in banks worth 20 lakh. Should I go for Senior Citizen Savings Scheme (SCSS), what are pros and cons of SCSS? 

Reply by Balwant Jain, a tax and investment expert
 
Any person who is over 60 years can invest up to Rs 30 lakh in Senior Citizen Savings Scheme (SCSS). The deposits under this scheme can be made in lump sum or in more than one deposits but the minimum amount deposit of is Rs 1,000. Please note that the aggregate of all the deposits taken together under SCSS cannot exceed Rs 30 lakh at any time. One can avail benefit of this scheme as many times as one wishes subject to the upper limit of investments at any given point of time.
 
The original tenure of deposits made under SCSS is five years which can be extended for another three years by applying in Form no. 4. At present the rate of interest paid on SCSS scheme is 8.20% if deposits are made by 30th June 2024. The interest is paid quarterly. The rate of interest may get changed if you make the deposit after 30th June based on the rate announced by the government for the next quarter. Please note that the rate of interest on the deposit will remain the same for entire period of five years. The rate of interest applicable in case you extend the tenure of the deposits will be the rate prevalent at the time of extension.
 
The scheme allows you to encash prematurely but with a cost. If you encash before completion of one year, no interest is paid and if any interest has been paid the same would be recovered. If you encash the deposits made under SCSS after one year but before completion of two years 1.50% of the amount of deposit is deducted at the time of such encashment.  After completion of two years the penalty is capped at 1% of the deposit amount. Please note that there is no provision for reversal/recovery of interest paid if the deposits under SCSS are encashed after one year. The bank fixed deposits also have similar rules for reducing the rate of interest payable in case of prematurely encashed fixed deposits.
 
Generally, no tax deduction is available under Section 80C for bank FD unless you make deposit under tax saving FDs which have a lock in of five years. However, the deposits made under SCSS are eligible for deduction under Section 80C up to Rs 1.50 lakh in the year of deposit under the old tax regime. You may stagger your deposits under SCSS in such a way so as to avail maximum tax benefits under Section 80C. In case the deposits under SCSS are prematurely withdrawn the deduction claimed earlier gets reversed in the year of such encashment.
 
Interest paid under SCSS is fully taxable and tax would be deducted at source if the amount of interest exceeds Rs 40,000 in a year. You can submit Form no 15H for payment of interest without deduction of tax at source, if you have no tax liability. Interest received on bank FD as well as SCSS are eligible for deduction under Section 80TTB up to a maximum of Rs. 50,000 in a year if you opt for old tax regime.

(The views by experts are their own and not that of Business Today. Readers are encouraged to consult a qualified financial experts or a SEBI-registered investment advisor before making any investment decision)