Investment after 60

A N Shanbhag examines the salient features of the new Senior Citizens Savings Scheme

Finally, the long-awaited new scheme for senior citizens announced by P Chidambaram in his Budget speech has seen the light of day on August 2. The scheme is under the aegis of Small Savings and therefore, designated post offices will be handling the scheme. The following are the salient features:

Account opening: An individual (and not HUF) who has attained the age of 60 years or above is eligible to open the account.

NRIs are not eligible for this scheme. If a depositor subsequently becomes an NRI during the currency of the account, the account may continue till its maturity on a non-repatriation basis and the account shall be marked as a non-resident account. Post-maturity continuation facility is not available to such an account.

The age limit is 55 years for someone who has retired under a VRS, provided the account is opened within three months of the date of retirement. In such cases a certificate from the employer should be obtained and submitted to the post office.

The deposits are to be made in multiples of Rs 1,000 with a cap of Rs 15 lakh per person,

A depositor may open the account in individual capacity or jointly with his or her spouse. No other joint holder is permitted.

A depositor may operate more than one account subject to the condition that the maximum amount in all accounts taken together at any given point of time shall not exceed Rs 15 lakh per person. At the same post office, two or more accounts cannot be opened during one month.

As soon as it comes to the notice of the deposit office that a deposit exceeds this ceiling, it shall request the depositor in writing, to withdraw the excess amount immediately.

This excess shall carry interest at the rate applicable from time to time to the POSB account (3.5 per cent at present) and it shall be payable from the date of deposit of excess amount to the end of the month preceding the month in which the depositor is requested to withdraw the excess amount. The amount of excess interest, if any, already paid to the depositor, shall be deducted. The investments in the scheme will be non-tradable and non-transferable.

Interest: The interest rate is 9 per cent p.a., rounded off to the nearest rupee, payable quarterly, on March 31, June 30, September 30 and December 31. Understandably, the interest for the first and the last quarter will be for a broken period. The interest is fully taxable, not even covered by Section 80L.

Maturity: The term of the scheme is five years. The deposit amount shall be paid on production of the passbook accompanied by withdrawal form.

Within one year of its maturity, the depositor may apply for its one-time extension of three years. Under such a situation, the account shall earn interest at the rate applicable to the new accounts prevailing at that juncture.

An account, which is neither closed nor extended at maturity, shall attract post maturity interest at POSB rates existing at that juncture, up to the end of the month preceding the month of closure of the account.

In the case of death of a depositor before maturity, the account shall be closed and deposit refunded along with interest till the end of the month, to the nominee or legal heirs.

Premature closure: The depositor may be permitted to withdraw the deposit and close the account after the expiry of one year from the date of opening of the account subject to ""

* In case the account is closed after the expiry of one year but before two years, an amount equal to one-and-a-half per cent of the deposit shall be deducted.

* In case the account is closed on or after the expiry of two years, one per cent of the deposit shall be deducted.

The depositor availing the facility of extension of the account may be permitted to withdraw the deposit and close the account at any time after the expiry of one year from the date of extension of the account without any deduction.

Nomination: The depositor may, at the time of opening of the account, nominate a person or persons who, in the event of death of the depositor, shall be entitled to receive the payment due on the account. If nomination is not made at the time of opening of the account, it may be made at any time before its closure.

Nomination is available in the case of joint account also. However, in such case, the nominee's claim shall arise only after the death of both the depositor and the joint holder.

Comments: Investors, particularly senior citizens, have faced the problem of finding a safe place with reasonable liquidity to park their hard-earned money and earn a respectable interest for their subsistence.

Finally, they have got one. The Varistha Bima Yojana had its own limitations what with the miserly limit of Rs 2.66 lakh and that too shared between the husband and wife.

The interest rate of 9 per cent p.a., payable quarterly, works out at 9.31 per cent. See table for the after-tax take home for various tax rates.

The only drawback of this scheme is that it is to be handled by post offices. The systems and procedures at post offices are often laborious and outdated. However, till the scheme gets extended to banks, this is the only option.

The author may be contacted at anshanbhag@yahoo.com