NEW DELHI: As we head towards a difficult few years, securing the income of senior citizens against the vagaries of uncertain times assumes urgency, especially since the pandemic has increased volatility in the equity and debt markets. However, despite the RBI’s rate cut, there are a few fixed deposit-type instruments available for senior citizens, which provide better-than-average interest rates, with varying levels of flexibility.
The first is the newly extended Pradhan Mantri Vaya Vandana Yojana (PMVVY), which was initially slated to be discontinued March 31, 2020. However, the pension scheme has now been extended by the Union Cabinet for another three years, till March 31, 2023.The scheme, while called a pension scheme, is structured similar to a fixed deposit and provided by the LIC.
The deposits will have a 10-year tenure and, while the new scheme has a lower interest rate than the earlier 8 per cent, the new rate of 7.4 per cent is still better than the regular bank fixed deposits. According to the plan, after the first year, the rate will be reset every year in line with the Senior Citizens Saving Scheme (SCSS) with a ceiling of 7.75 per cent. If this threshold is breached at any point, the scheme will be appraised freshly.The entry age for the scheme is 60 years and the maximum investment limit is Rs 15 lakh.
This is the same maximum investment limit for the SCSS too, which while providing a similar interest rate as the PMVVY, is a bit more flexible. While premature withdrawals from the 10-year PMVVY are possible only in times of extreme emergency such as deteriorating health, the SCSS has a shorter tenure of five years. This may be extended by three more years if the depositor so prefers.
The investments made in the SCSS are also eligible for tax deductions up to Rs 1.5 lakh per annum under Section 80C of the Income-tax Act. In contrast, the interest earned from the PMVVY is fully taxable according to the income tax slab of the depositor.
Other options from conventional banks have also been introduced in recent times, like the State Bank of India’s (SBI) and HDFC Bank’s special senior citizen fixed deposit plans. Both these fixed deposits — SBI’s We Care and HDFC Bank’s Senior Citizen Care FD — offer interest rates of 6.5 per cent per annum for tenors from 5-10 years. This rate is around 80 basis points (0.8 per cent) more than those offered to the general public, in contrast to the normal extra rate of 50 bps offered to senior citizens usually.