No tax on Senior Citizen Savings Scheme (SCSS) interest income! Here’s why SBI Research suggests this

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Published: April 3, 2020 9:17:03 PM

SCSS interest income: In the wake of deep cuts in interest rates of small savings schemes, the SBI Research has suggested the government to make interest income on Senior Citizen Savings Scheme (SCSS) completely tax-free

SCSS interest income, interest rate 2020SBI Research wants government to make SCSS interest income, tax-free.

SCSS interest income: In the wake of deep cuts in interest rates of small savings schemes, the SBI Research has suggested the government to make interest income on Senior Citizen Savings Scheme (SCSS) completely tax-free as the elderly people are likely to be severely affected by the rate cuts in small savings schemes. In its latest ‘Ecowrap’ report, SBI Research said, “As per our estimates, there are around 4.1 crore Senior Citizens term deposits accounts in the country with total deposit of Rs 14 lakh crore.”

“Hence it is imperative that the Government exempts interest income from taxes particularly for Senior Citizen Savings Scheme (SCSS) for which the Government has reduced interest rate from 8.6% to 7.4%, a whopping 120 bps decline,” it added.

The report noted that reduction in Small Savings Schemes was “imperative”. Since the small savings rates are benchmarked with the 10 -Year G-sec, the recent rate cuts will “reduce the divergence between bank and small savings rates.”

While pointing out that the interest rates on small savings schemes are still better than the bank deposits, SBI Research noted that the rate cuts will have a “huge impact on senior citizens savings, as their regular income will drop.”

We assess that there are around 4.1 crore Senior Citizens term deposits accounts in the country with total deposit of Rs 14-lakh crore. The average deposits size per account is around Rs 3.3 lakh and interest income from such deposits forms 5.5% of Private Final Consumption Expenditure in FY19,” it said.

In the current scenario, the report noted, ” it is imperative that the Government should exempt interest income from taxes particularly for Senior Citizen Savings Scheme (SCSS) for which Government has reduced interest rate from 8.6% to 7.4%, a whopping 120 bps decline, The interest income under SCSS is fully taxable (the interest amount for Rs 1 lakh deposit for 5 years is around Rs 40,000 which is taxable).”

Under SCSS scheme, Senior Citizens can deposit up to Rs 15 lakh in an account.

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