How senior citizens can gain now while withdrawing from NSS accounts: What you need to know

Senior citizens who have long held their savings in National Savings Scheme (NSS) accounts can now breathe easy. The Central Board of Direct Taxes (CBDT) has officially clarified that no tax will be deducted at source (TDS) on withdrawals from NSS accounts made on or after April 4, 2025. This announcement resolves recent confusion where many elderly investors saw TDS deducted from their withdrawals despite earlier government assurances.

Relief comes after confusion post-Budget 2025

In the Union Budget 2025, Finance Minister Nirmala Sitharaman had clearly announced that NSS withdrawals made on or after August 29, 2024, would be exempt from TDS. However, there were several instances where post offices still deducted tax from such withdrawals, leading to concerns among senior citizens.

The CBDT’s latest notification, issued on April 4, 2025, has now reinforced that no TDS shall be deducted under Section 194EE of the Income-tax Act for NSS withdrawals from that date onward. This move brings clarity and relief to senior citizens relying on their life-long savings.

Who will benefit?

This tax exemption will primarily benefit senior and super senior citizens who still have legacy NSS accounts—particularly those where interest payments have ceased. These individuals can now withdraw their funds without any tax being deducted, ensuring they receive the full amount saved.

It’s important to note that NSS accounts have been discontinued since 2002, and the government stopped paying interest on these accounts last year. So, for many senior citizens, keeping money parked in NSS is no longer financially viable. Shifting these funds to other active small savings schemes—like SCSS or Post Office MIS—makes better financial sense now that TDS will no longer reduce the withdrawn amount.

Brief background on NSS

The National Savings Scheme (NSS) was launched by the government to promote long-term, safe investments. Two versions existed:

NSS-87 (introduced in 1987, withdrawn in 1992) allowed only one withdrawal per year.

NSS-92 (introduced in 1992, discontinued in 2002) allows unlimited withdrawals.

Although no new NSS accounts have been opened since 2002, many senior citizens still hold these legacy accounts.

What if TDS has already been deducted?

If any TDS has been mistakenly deducted despite eligibility for exemption, senior citizens can claim a refund by filing their income tax returns. However, refunds are granted only if the total tax liability is less than the TDS already deducted.

A welcome move for retired investors

Before this update, NSS withdrawals were treated as “income from other sources” and taxed accordingly. Unlike PPF and some other tax-free savings schemes, TDS was previously applied to NSS withdrawals, reducing the final payout for retirees. The government’s latest move rightly aligns NSS withdrawals with other senior-friendly investment options.

With this clarification, retired investors can now plan their finances better, ensuring their savings are protected and fully accessible — just as they were originally intended to be.

TDS relief

Apart from the TDS exemption on NSS withdrawals, Budget 2025 delivered another major relief for senior citizens—the tax deduction limit on interest income has been raised from Rs 50,000 to Rs 1 lakh. This means retirees can now enjoy higher tax-free income from bank deposits, post office savings, and similar interest-bearing instruments.

SCSS and NSS

The Senior Citizen Savings Scheme (SCSS), which falls under the broader National Savings Scheme (NSS) umbrella, continues to be a popular investment for retirees. With attractive interest rates and quarterly payouts, SCSS is designed to provide steady income and financial stability for senior citizens.

Investing in NSS offers senior citizens Section 80C tax benefits, assured returns, and a sovereign guarantee — features that make it more dependable than alternatives like Public Provident Fund (PPF) or fixed deposits (FDs). For those seeking safety, tax savings, and predictable returns, NSS-linked schemes remain a compelling choice.