Should senior residents shut SCSS accounts and spend cash on new ones?
Senior Citizens Savings Scheme: With the most recent hike of the SCSS fee of curiosity to eight.2% by the Government, aged people now have the prospect to revenue from the additional 0.8% curiosity. According to money consultants, senior residents can take revenue from the higher fee of curiosity by closing the sooner SCSS account after assessing whether or not or not the penalty for closing an earlier account is decrease than the additional curiosity earned throughout the new account.
“Following the completion of a yr, the senior explicit individual would possibly prematurely withdraw from SCSS. If a withdrawal is taken after a yr has handed nevertheless sooner than a interval of two years has handed from the date of the deposit, a penalty of 1.50% of the deposit will most likely be assessed,” acknowledged Vinit Khandare, CEO and Founder, MyFundBazaar.
According to the SCSS tips, an account could also be closed sooner than the 5-year maturity interval, nevertheless premature closure will incur a penalty. The account could also be closed sooner than the 5-year maturity interval, nevertheless the penalties needs to be paid, acknowledged Archit Gupta of Clear.
SCSS tips on premature account closure
1)If the account is closed all through the primary yr of opening, no curiosity will most likely be paid
2)If the account is closed after one yr nevertheless sooner than two years, a deduction of 1.5% of the principal amount will most likely be made.
3)If the account is closed after two years nevertheless sooner than 5 years, a deduction of 1% of the principal amount will most likely be made.
In which state of affairs, switching to a model new SCSS account will most likely be helpful?
For occasion, if a senior citizen invested ₹10 lakh in an SCSS account in February 2022 at a 7.4% fee of curiosity, the quarterly curiosity will be ₹18,500. If they want to change to a model new account with an 8.2% fee of curiosity, they need to pay a penalty of 1.5% of the principal amount, which is ₹15,000. In this case, switching to the model new account will be helpful on account of the benefits outweigh the penalty for premature withdrawal. However, one additionally must take note of the tax implications sooner than making the change, acknowledged Archit Gupta.
What if the senior citizen availed tax-benefit on the SCSS account they want to shut?
Individuals who spend cash on SCSS can avail of a tax deduction of as a lot as ₹1.5 lakhs under Section 80C. “If a senior citizen has already claimed this deduction and decides to prematurely shut the account, they need to pay tax on the beforehand exempted amount as a result of the account has a maturity interval of 5 years. To steer clear of dropping the tax revenue, senior residents can retain ₹1.5 lakh throughout the earlier account and solely withdraw the amount in additional of ₹1.5 lakhs,” outlined Gupta.
The fee of curiosity of SCSS has been hiked from 8 per cent to eight.2 per cent for the April-June quarter. Once the funding is accomplished the speed of curiosity stays mounted all by means of the tenure. While presenting Union Budget 2023, Finance Minister Nirmala Sitharaman launched an increase throughout the deposit prohibit under SCSS to ₹30 lakh, from ₹15 lakh for a single account holder from this financial yr.
Disclaimer: The views and proposals made above are these of explicit individual analysts, and by no means of Mint. We advise merchants to confirm with licensed consultants sooner than taking any funding decisions.
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