However, even if this happens, the trade-off of the Rs 15 lakh investment option in PMVVY for an extra Rs 15 lakh in SCSS would be beneficial for seniors.
Senior Citizen Savings Scheme offers an interest rate of 8 per cent per annum with quarterly payout, while PM Vaya Vandana Yojana offers an interest of 7.4 per cent per annum with monthly payout option. Moreover, the Senior Citizen Saving Scheme has a shorter tenure of five years which is half that of PMVY.
Also Read: Senior Citizen Savings Scheme’s investment limit increased to Rs 30 lakh: Budget 2023
Senior citizens can claim a tax deduction of up to Rs 1.5 lakh for investments in SCSS under Section 80 C of the Income Tax Act, 1961. Investments in Pradhan Mantri Vaya Vandana are not eligible for deductions to save income tax. Do note that senior citizens enjoy a higher level of tax-exempted income — Rs 3 lakh per annum under the old tax regime. Super senior citizens (age above 80 years) enjoy a much higher tax-exempt income limit of Rs 5 lakh per annum under the old tax regime.
Further, the premature withdrawal options in Senior Citizen Saving Scheme are easier and less stringent than in the case of the current PMVVY. A premature withdrawal option is allowed under SCSS just after opening the account with interest forfeiture or penalty option. If the PMVVY account is closed before one year, interest will not be payable and if any interest was paid then it will be recovered from the principal amount. For premature withdrawal after one year, an amount equal to 1.5 per cent of the deposit is deducted as a penalty. In case of premature withdrawal on or after the second year, an amount equal to 1 per cent of the deposit is deducted.
The PMVVY scheme allows premature exit during the policy term under exceptional circumstances like the pensioner requiring money for the treatment of any critical/terminal illness of self or spouse, according to the LIC website.Also Read: Which tax regime should senior citizens opt for post-budget 2023?
Of course, seniors can invest in Pradhan Mantri Vaya Vandana Yojana before its current closure date of March 31, 2023 and invest another Rs 15 lakh in the SCSS after April 1, 2023. Any investment in Pradhan Mantri Vaya Vandana Yojana before closure would run for its normal tenure of ten years subject to the scheme’s terms. If the same person has enough funds would be able to invest an extra Rs 15 lakh in the Senior Citizen Saving Scheme post-March 31, 2023, as per the Budget 2023 announcement. Consequently, at least till the PMVVY investment matures (10 years), the senior citizen would be able to earn a return on an investment of Rs 15 lakh in Pradhan Mantri Vaya Vandana Yojana and Rs 30 lakh in the SCSS, i.e., on a total of Rs 45 lakh.
| Senior Citizen Savings Scheme (Quarterly Income) | |
| Principal Amount | Rs 15,00,000 |
| Interest Rate | 8% |
| No. of years | 5 |
| Quarterly Interest | Rs 30,000 |
| Annual Interest | Rs 1,20,000 |
| Total Interest in 5 Years | Rs 6,00,000 |
| Pradhan Mantri Vaya Vandana Yojana (Monthly Pension) | |
| Principal Amount | Rs 15,00,000 |
| Interest Rate | 7.40% |
| No. of years | 10 |
| Monthly Pension | Rs 9,250 |
Do note that the central government revises the interest rate of small savings schemes such as the Senior Citizens Savings Scheme every quarter. So, if you wish to open the account next quarter the revised rate will be applicable for the Senior Citizens Savings Scheme for the April-June quarter FY2024. However, the rate on the date you make the deposit gets locked in for the entire tenure of 5 years so you will be getting the same rate despite the changes in the SCSS interest rates later.