If you are planning to save tax in the financial year 2023-24, you need to invest by March 31, 2024. If you are a senior citizen and prefer fixed income investments, then the next inevitable question is where should you invest to reduce your tax burden? Even if the aim is to minimise tax burden, you need to look at the other aspects of investments as well, such as interest rate and tenure. So the answer is not that simple. But we will still try to decode it for you here.
Senior citizens often go for fixed deposits, considering the safety and fixed return. Elderly investors are in for a sweeter deal this year as they can get an attractive fixed return on the Senior Citizen Savings Scheme (SCSS). Is SCSS a better option for senior citizens than tax-saving fixed deposits? Probably yes. But before you invest, let’s compare the features and benefits of SCSS and five-year tax-saver fixed deposits (FDs).
SCSS interest rate vs tax-saver fixed deposits interest rates
“How much return will I get?” is often the foremost question when you are planning to invest. To get some clarity, let’s compare the interest rates of SCSS and tax-saving FDs. For the January-March quarter, Senior Citizen Savings Scheme offers an interest rate of 8.2% per annum.
If senior citizens go for a fixed deposit in any prominent public or private sector bank, they will get an interest rate of 6.5-8% per annum. YES Bank offers an interest rate of 8% on tax-saver FDs for senior citizens. This is the highest interest rate that a senior citizen can get on tax-saving FDs now. DCB Bank offers an interest rate of 7.9% on senior citizen tax-saving FDs. IndusInd Bank, HDFC Bank, Axis Bank offer an interest rate of 7.75% on tax-saving FDs for senior citizens.
Tax-saving FD interest rates for senior citizens as on March 15, 2024
| Bank | 5-year FD interest rate (%)* |
| YES Bank | 8.00 |
| DCB Bank | 7.90 |
| Axis Bank | 7.75 |
| HDFC Bank | 7.75 |
| Induslnd Bank | 7.75 |
| Bank of Baroda | 7.50 |
| ICICI Bank | 7.50 |
| IDFC First Bank | 7.50 |
| Canara Bank | 7.20 |
| Punjab National Bank | 7.00 |
| Kotak Mahindra Bank | 6.50 |
| State Bank of India | 6.50 |
*Interest rates compounded quarterly
As on March 15,2024
Tenure: SCSS vs 5-year bank FDs
The tenure of the Senior Citizen Savings Scheme is five years; it is the same for tax-saver fixed deposits. After five years, investors have the option to extend SCSS accounts indefinitely in blocks of three years each. However, if you want tax benefits, you have to make fresh investments in SCSS.Minimum and maximum investment: SCSS vs tax-saver FDs
The minimum investment limit in SCSS is Rs 1,000 and the maximum is Rs 30 lakh. Deposits in SCSS have to be in multiples of Rs 1,000. Do keep in mind that you can only get a tax deduction of up to Rs 1.5 lakh , even if you invest Rs 30 lakh in SCSS.
For tax-saving FDs, the minimum investment limit is Rs 1,000 and the maximum is Rs 1.5 lakh.
SCSS income tax rules vs tax-saver FDs income tax rules
Both Senior Citizen Savings Scheme and tax-saver fixed deposits offer a tax deduction of up to Rs 1.5 lakh a year under Section 80C of the Income-tax Act, 1961.
But you need to make fresh deposits in SCSS or tax-saver FDs during the financial year to get the tax benefit.
The interest earned on the deposit in SCSS or tax-saver FD is fully taxable and tax is deducted at source (TDS) if the total interest in a year goes above Rs 50,000. However, if the income is not taxable, one has to provide Form 15H or Form 15G , so that no tax is deducted at the source.
Risk-protection and guarantees: SCSS vs tax-saver fixed deposits
Senior Citizen Savings Scheme is a small savings scheme backed by the Union government. So , you get a sovereign guarantee. Fixed deposits in a scheduled commercial bank come with minimal risk. Deposits up to Rs 5 lakh in scheduled banks are insured under the Deposit Insurance Credit Guarantee Corporation’s (a wholly-owned subsidiary of the RBI) deposit insurance scheme. This insurance includes both the principal and interest amounts. So, dividing your investment into multiple FDs will be a safer decision.
Senior Citizen Savings Scheme premature withdrawal vs tax-saver fixed deposits premature withdrawal
You can prematurely close your SCSS account with a penalty. If you close your SCSS before one year, 1% of the deposit will be deducted. If the SCSS account is closed after one year but before two years, 1.5% of the deposit will be deducted from the principal amount. If the account is closed after two years but before five years, 1% will be deducted from the principal amount.
No premature withdrawal option is available on tax-saver FDs.
Considering a slightly higher interest rate and premature withdrawal facility, Senior Citizen Savings Scheme has an edge over tax-saver fixed deposits. However, the final investment choice should align with your goal and horizon.
