Modifying SCSS, again

The latest changes in the Senior Citizens Savings Scheme

I wonder why our lawmakers are so hasty. They make laws, only to modify them time and again. The rules regarding Securities Transaction Tax (STT) are a case in point.

The constant chopping and changing not only of the rates but also in the applicability has left investors confused. As a result, the objective, which was to encourage investments in the stock market, has not been attained.

Take the Senior Citizens Savings Scheme (SCSS). The scheme was first announced on August 2, 2004 and already amendments in the rules and operations have been carried out several times. This is the fourth time I am writing about the scheme in three months.

Though these amendments do clarify certain operational issues and are ultimately for the benefit of the investors, however, in the short-term, they actually work to the contrary and, in fact, do more harm than good.

Though banks are now being allowed to accept SCSS deposits, primarily the scheme was being run by post offices who have their own pace and method of interpreting rules and changes thereof.

As a result, different post offices were imposing different interpretations of the rules even when there were notifications issued by the RBI that clarified those issues.

In any case, the latest notification dated October 27, 2004 contains significant changes. The first major amendment deals with the eligibility to open an SCSS account.

Opening of the account

By now it is known that the scheme is open to an individual who has attained the age of 60 years or above on the date of opening of the account. However, confusion reigns when it comes to the lower age of 55.

Earlier, the scheme was also kept open to persons who are of 55 years of age and who had taken voluntary retirement. The proceeds of such VRS had to be invested within three months of disbursal.

The new amendment clarifies that the scheme is indeed open to persons who are 55 years of age and who have retired on superannuation or otherwise. This means that it is not necessary that retirement had been through a VRS scheme only. It is open to any kind of retirement.

Further on, the time limit for investing has been brought down to within one month of the date of receipt of the retirement benefits. Proof of date of disbursal of such retirement benefit(s) along with a certificate from the employer indicating the fact of retirement on superannuation or otherwise, retirement benefits, employment held and period of such employment with the employer has to be attached.

What about persons who have already retired? It would be unfair to make them miss out just on account of the fact that they have retired prior to the announcement of the scheme.

For such persons, it has been provided that those who have retired at any time before the commencement of the scheme and attained the age of 55 years or more on the date of opening of an account, shall also be eligible to subscribe under the scheme within a period of one month of the date of the notification (October 28, 2004) subject to the fulfillment of the other specified conditions.

In short, it doesn't matter when the investor has retired, i.e., before, on or after the notification as long as he or she is of age 55 when opening the account.

It has also been clarified that the retired personnel of Defence Services (excluding Civilian Defence Employees) shall be eligible to subscribe under the scheme irrespective of the above age limits subject to the fulfillment of the other specified conditions.

Let us understand these changes by way of an example. Say, Mr Joshi retired in 2002 and completed 55 years in July 2004. The retirement benefits that he received in 2002 were to the tune of Rs 20 lakh. He invested the funds in bank fixed deposits. Will he be eligible to invest in SCSS?

A careful reading of the above rules would make Mr Joshi an eligible investor in SCSS. Though he is not 60 years of age, he is definitely 55 years and above while opening the account. To reiterate, it doesn't matter what your age was when you retired.

As long as you are of 55 years or more as of opening the account, you would be eligible. Now, Mr Joshi would have to invest his retirement benefits within one month from 28th October. Last but not least, though his retirement benefits are Rs 20 lakh, the individual limit of Rs 15 lakh stays and

Mr Joshi would not be allowed to invest the extra Rs 5 lakh in this scheme.

For the purposes of the scheme, retirement benefits means any payment due to the depositor on account of retirement, whether on superannuation or otherwise, and includes

Provident Fund dues, retirement/superannuation gratuity, commuted value of pension, cash equivalent of leave, savings element of Group Savings linked Insurance Scheme payable by employer to the employee on retirement, retirement-cum-withdrawal benefit under the Employees' Family Pension Scheme and ex-gratia payments under a voluntary retirement or a special voluntary retirement scheme.

Comments

Clarification about applicability of TDS is necessary. The investor cannot automatically infer that there is no TDS.

In the case of Varishtha Bima Yojana, the scheme was launched on July 14, 2003 and the clarification was issued by the Government of India, by declaring, "Tax is to be paid by the bond holder as per provisions of the Income Tax Act, 1961 on the interest income earned from investments in 8 per cent Savings (Taxable) Bonds, 2003. However, tax (TDS) will not be deducted at source."

That said, investors at large, particularly senior citizens, were facing the problem of finding a very safe place with good liquidity for parking their hard-earned money and earning a respectable interest for their subsistence.

Finally, they have got one. The Varistha Bima Yojana had its own problems, 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 er annum, payable quarterly, works out at 9.31 per cent. The after-tax take home for various tax rates are given in the table.

Those who are eligible for the scheme need not be sorry for the 6.5 per cent RBI Savings Bond Scheme having been closed.

All said and done, it does appear that the authors of the legislation revel in writing the law and amending it continuously and endlessly. We await the next amendment.

The author may be contacted at

anshanbhag@yahoo.com