LIC pension scheme or Senior Citizens Savings Scheme: Check interest rates, tax benefits
Senior citizens often depend on banks FDs for a regular income. Amid this falling interest rates, here are two attractive investment options for those who are 60 or above— Senior Citizens Savings Scheme and LIC Pradhan Mantri Vaya Vandana Yojana.
Pradhan Mantri Vaya Vandana Yojana or PMVVY scheme:
The Life Insurance Corporation of India (LIC) has recently modified the interest rates of Pradhan Mantri Vaya Vandana Yojana (PMVVY). Launched in 2017, this pension scheme for senior citizens will attract a fixed interest rate for FY 2020-21.
Any individual who is 60 or above the age of 60 can avail the benefits of Pradhan Mantri Vaya Vandana Yojana (PMVVY) scheme. There is no entry age.
The pension scheme has a policy term of 10 years and the pensioner can choose monthly, quarterly, half yearly or yearly mode of pension. Now, the interest in the Pradhan Mantri Vaya Vandana Yojana (PMVVY) is higher than the fixed deposit scheme offered by SBI. The scheme will provide an assured rate of return of 7.40% per annum in FY21. For those investing in this pension scheme in this financial year, it will fetch 7.40% per annum payable monthly interest for entire duration of ten years.
One can buy PMVVY scheme from Life Insurance Corp. of India. This pension scheme is available via both offline and online mode.
Senior citizens can draw a minimum pension of ₹1,000 per month depending on the amount invested in the scheme. The maximum pension amount than can be withdrawn is ₹9,250 per month.
One can invest up to ₹15 lakh in this pension scheme. The minimum investment has also been revised. For a pension of ₹12,000 per annum, one should invest at least ₹1,56,658. An investment of ₹1,62,162 can fetch a minimum pension amount of ₹1000 per month under the scheme, according to LIC.
Premature surrender of the PMVVY in case the investor or spouse suffers from terminal illness or critical illness is allowed. In such cases, 98% of the purchase price is paid back to the policyholders.
Senior Citizens Savings Scheme
Touted as one of the simplest investment options, this unique scheme was launched in 2004. The scheme is available through several public and private sector banks and India Post offices.
Any individual who is 60 or above the age of 60 can avail the benefits of Senior Citizens Savings Scheme. Those who have attained the age of 55 years or more but less than 60 years can also open their accounts under this scheme if they have opted for voluntary retirement. Defence personnel who are above the age 50 can also avail this benefit.
One can open an account under this scheme with a minimum deposit of ₹1,000. The limit can go up to ₹15 lakh. The deposit in the account should be in the multiples of ₹1,000. Other than the individual accounts, banks also provide the option of opening accounts jointly with the spouse under the Senior Citizens Savings Scheme.
Among the various small savings scheme, Senior Citizens Savings Scheme offers the highest rate of interest. Currently, the interest rate is set at 7.4% for April to June quarter, 2020. Finance Ministry review the interest rate in every quarter. The interests are paid on a quarterly basis — the first working day of April, July, October and January.
Accounts opened under Senior Citizens Savings Scheme has a tenure of five years. One can extend the account for another three years after it matures.
In case anyone closes the account after one year and before the completion of two years, 1.5% of the deposit shall be deducted as penalty. If the account is closed after two years, 1% penalty will be charged.
Investments of up to ₹1.5 lakh is eligible for deduction under section 80C of the Income Tax Act. However, interest earned from the scheme is fully taxable. In case, the interest earned is more than ₹40,000 in a financial year, tax deducted at source (TDS) is applicable to the interest earned.