Senior Citizens' Savings Scheme tax
SCSS tax for 2026-27: deposit under Section 123, interest fully taxable, Rs. 50,000 under Section 153, TDS above Rs. 1,00,000, clawback within five years.
The Senior Citizens’ Savings Scheme (SCSS) is a five-year government deposit scheme, the Senior Citizens’ Savings Scheme 2019 notified by G.S.R. 916(E) dated 12 December 2019 under the Government Savings Promotion Act 1873, whose deposit is deductible under Section 123 of the Income-tax Act 2025 and whose interest is fully taxable, with a share of the Rs. 50,000 Section 153(2)(b) deduction for a senior citizen in the old tax regime.
The deposit, the interest and the withdrawal are each taxed under a different provision. The deposit, up to Rs. 1,50,000 a year within the Section 123 ceiling, is deductible under paragraph 1(u) of Schedule XV. The interest, paid quarterly, is income under the head “Income from other sources” and is taxed at the slab rate. The withdrawal is tax-free at maturity, but a withdrawal within five years of a deposit on which the Section 123 deduction was claimed is taxed as income of that year under paragraph 5 of Schedule XV.
Every deduction in that list belongs to the old regime. In the default new tax regime the deposit earns nothing and the interest is taxed in full, though the Section 156(2)(a) rebate of up to Rs. 60,000 cancels the tax for any resident individual whose total income is Rs. 12,00,000 or less.
The scheme is open to a resident aged 60 or more, to a retiree aged 55 to 59 within three months of receiving retirement benefits, and to a retired member of the defence services from 50. The second and third groups are not senior citizens under Section 2(100) of the Act, which matters for the interest deduction and for deduction at source. The sections below take the deposit, the interest, the withholding, early closure, joint and inherited accounts, and the arithmetic for a pensioner investing retirement money, for the tax year 2026-27.
The scheme in brief
The Senior Citizens’ Savings Scheme 2019 replaced the Senior Citizens Savings Scheme Rules 2004, which G.S.R. 912(E) dated 12 December 2019 rescinded on the day the new scheme was notified. Accounts are opened at post offices and at banks authorised to run the scheme.
| Feature | Rule | Paragraph of the 2019 Scheme |
|---|---|---|
| Who may open | Resident aged 60 or more; retiree aged 55 to 59 within three months of receiving retirement benefits; retired defence personnel, excluding civilian defence employees, from 50 | 3(1); clause (ii) and the proviso substituted by G.S.R. 829(E), 7 November 2023 |
| Spouse of a government employee who died in harness | May open, where the employee had attained 50 | Second proviso to 3(1), G.S.R. 829(E) |
| Joint account | With spouse only; whole deposit attributed to the first holder | 3(4) to 3(6) |
| Deposit | One deposit per account, multiples of Rs. 1,000, Rs. 30 lakh across all accounts | 4(1) and 4(2); limit raised by G.S.R. 240(E), 31 March 2023 |
| Interest | Quarterly, on the first working day of April, July, October and January | 5(2) |
| Term | Five years, extendable in blocks of three years | 7(1) and 8, as amended by G.S.R. 829(E) |
| Premature closure | Interest recovered within one year; 1.5% of the deposit in year two; 1% after | 6(1) |
Main terms of the Senior Citizens’ Savings Scheme 2019, as amended to G.S.R. 829(E) dated 7 November 2023.
The interest rate is fixed on the date of deposit for the five-year term, and for an extended block on the date of maturity or extended maturity under paragraph 5(7). The Department of Economic Affairs (Budget Division) fixes small savings rates each quarter by Office Memorandum under F. No. 1/4/2019-NS. The OM of 29 December 2023 set the scheme rate at 8.2% for 1 January to 31 March 2024, and the OM of 30 September 2026 kept every small savings rate for 1 October to 31 December 2026 unchanged from the quarter before.
The deposit: Section 123 deduction
A deposit in a Senior Citizens’ Savings Scheme account qualifies for the deduction under Section 123 of the Income-tax Act 2025, the successor to Section 80C, read with paragraph 1(u) of Schedule XV. The deduction is allowed in the tax year of the deposit, within the Rs. 1,50,000 ceiling that Section 123 places on the aggregate of every Schedule XV item, including provident fund contributions, life insurance premium and five-year tax-saving deposits.
Paragraph 1(u) has a drafting defect: it reads “deposit in an account under the Senior Citizen Savings Scheme Rules, 2004”. Those Rules were rescinded by G.S.R. 912(E) on 12 December 2019, so an Act that received assent on 21 August 2025 names an instrument that had ceased to exist almost six years earlier. Clause (xxiii) of Section 80C(2) of the 1961 Act, inserted by the Finance Act 2008 with effect from 1 April 2008, carried the same reference to the 2004 Rules up to its repeal.
A depositor who places Rs. 30 lakh in one tax year gets Rs. 1,50,000 of deduction at most, and only if no other Schedule XV item uses the ceiling. There is no carry-forward of the excess. Because the 2019 Scheme allows only one deposit per account under paragraph 4(2), a retiree who wants the deduction in more than one year must open accounts in different tax years, within the Rs. 30 lakh total.
Section 202(2)(a)(xii) removes Section 123 from the new regime. A depositor in the new regime gets nothing for the deposit and, for that reason, is also outside the clawback in paragraph 5 of Schedule XV, which applies only where the deduction was allowed.
The interest: taxable, with the Section 153 deduction
Interest on a Senior Citizens’ Savings Scheme account is taxable in full. No Schedule of the Income-tax Act 2025 excludes it, and it is charged under the head “Income from other sources” under Section 92. The rate of tax is the depositor’s slab rate, not a special rate.
In the old regime, a senior citizen deducts the interest under Section 153(2)(b), the successor to Section 80TTB, within one Rs. 50,000 limit shared with every other interest from a bank, a co-operative bank or a post office. The account is a deposit “repayable on expiry of fixed periods”, a time deposit under Section 153(5), and Section 153(2)(b) covers deposits “in any account, including time deposits”. A pensioner who also earns Rs. 60,000 of fixed-deposit interest has used the whole limit before the scheme interest is counted.
The scheme pays interest under paragraph 5(2) from the date of deposit to 31 March, 30 June, 30 September and 31 December, on the first working day of the following April, July, October and January. Interest for the January to March quarter is therefore paid in the next tax year. The annual information statement in Form No. 168 under rule 245 of the Income-tax Rules 2026, the successor to Form 26AS, records interest as paid or credited by the post office or bank.
Interest not claimed earns nothing further under paragraph 5(4), and it can be claimed later under paragraph 5(10).
The account is also outside the international reporting regime. The definition of “excluded account” in rule 238 of the Income-tax Rules 2026, which governs the accounts a financial institution reports to the Income Tax Department for exchange with other countries, lists “an account established under the Senior Citizens Savings Scheme Rules, 2004”, the same rescinded instrument that Schedule XV names. Domestic reporting of the interest in Form No. 168 is unaffected.
Deduction at source and Form No. 121
The post office or bank deducts tax from the interest only above a threshold. Section 393(1) Table serial 5(ii) of the Income-tax Act 2025 sets Rs. 1,00,000 a year for a senior citizen and Rs. 50,000 for anyone else, for interest other than interest on securities paid by a banking company, a co-operative society carrying on banking, or a post office on a deposit under a notified scheme. At the maximum deposit, a senior citizen’s annual interest is well above Rs. 1,00,000, so deduction at source applies unless a declaration stops it.
The declaration is Form No. 121 under rule 211 of the Income-tax Rules 2026, given under Section 393(6) of the Act, which replaced both Form 15G and Form 15H. It states that the tax on the depositor’s estimated total income for the year will be nil. The Note under the Table in Section 393(6) makes the declaration ineffective where the income covered exceeds the maximum amount not chargeable to tax, and then excludes a resident individual aged 60 or more from that bar. A senior citizen can therefore give Form No. 121 on scheme interest of Rs. 2,00,000 or more, so long as the estimated tax is nil, which in the new regime it is for total income up to Rs. 12,00,000.
A depositor aged 55 to 59 has neither advantage. The threshold is Rs. 50,000, and the Note’s senior-citizen exception does not apply, so Form No. 121 is barred once the interest covered exceeds the basic exemption, even where the rebate would make the tax nil.
Rule 211(3) of the Income-tax Rules 2026 requires the payer to allot a unique identification number to each Form No. 121 and rule 211(4) to report it in the quarterly statement. Section 393(7), as substituted by the Finance Act 2026, requires the payer to deliver the declarations to the prescribed income-tax authority by the seventh day of the month after each quarter.
Premature closure and the Schedule XV clawback
Closing an account early has two separate costs: the scheme’s own penalty, and, where the Section 123 deduction was claimed, a tax clawback.
The scheme penalty. Paragraph 6(1) of the Senior Citizens’ Savings Scheme 2019 allows closure at any time on an application in Form-2. Within one year of opening, the interest already paid is recovered from the deposit. Between one and two years, 1.5% of the deposit is deducted. After two years, 1% is deducted. Clause (iv), inserted by G.S.R. 829(E), deducts 1% where an extended account is closed within one year of extension, and paragraph 8(4) allows closure without deduction after one year of extension.
The tax clawback. Paragraph 5 of Schedule XV to the Income-tax Act 2025 provides that where the Section 123 deduction has been allowed for a deposit in an account under the scheme, and “any amount, including interest accrued” is withdrawn “before the expiry of the period of five years from the date of its deposit”, the amount withdrawn is deemed to be income of the tax year of withdrawal. Two amounts are excluded: interest already included in total income in an earlier year, and any amount received by a nominee or legal heir on the death of the depositor, other than interest accrued and not previously taxed.
| Event | Scheme penalty, paragraph 6(1) | Income-tax effect where Section 123 was claimed |
|---|---|---|
| Closure within one year | Interest paid is recovered | Amount withdrawn, net of interest already taxed, is income of the year |
| Closure in the second year | 1.5% of the deposit | Same |
| Closure after two years, before five | 1% of the deposit | Same |
| Maturity after five years | None | None; return of capital |
| Death of the depositor | Account closed under paragraph 7(2) | Nominee’s receipt of the deposit excluded from the clawback |
Premature closure under the Senior Citizens’ Savings Scheme 2019 and paragraph 5 of Schedule XV to the Income-tax Act 2025.
Read literally, the clawback taxes the whole amount withdrawn, not only the Rs. 1,50,000 that was deducted. A depositor who claimed Rs. 1,50,000 on a Rs. 15 lakh deposit and closes in year three withdraws Rs. 14,85,000 after the 1% penalty, and the text deems that amount to be income. Paragraph 4 of the same Schedule, which reverses deductions for life insurance, unit-linked plans and housing, recovers only “the aggregate amount of the deductions allowed”, so the two paragraphs are drafted differently.
The clawback is the successor to Section 80C(6A) of the 1961 Act, and the move changed its reach. Section 80C(6A) applied to any amount withdrawn within five years from an account referred to in Section 80C(2)(xxiii), whether or not a deduction had been claimed for it. Paragraph 5 of Schedule XV applies “where deductions in the nature of payments specified in column B of the Table below have been allowed”. From the tax year 2026-27, a depositor who did not claim the Section 123 deduction on a deposit, including every depositor in the new regime, is outside the clawback for that deposit.
A deposit made before 1 April 2026 sits between the two Acts. Its deduction, if claimed, was allowed under Section 80C of the 1961 Act, while paragraph 5 of Schedule XV speaks of deductions allowed under Section 123. Neither text says whether a withdrawal after 1 April 2026, within five years of such a deposit, is caught by paragraph 5 or by Section 80C(6A) carried forward by the saving clause in Section 536(2) of the 2025 Act. A depositor in that position who claimed the Section 80C deduction should expect the withdrawal to be treated as income of the year under one provision or the other, since both tax it on the same terms.
Joint accounts, death and extension
Joint accounts. Paragraph 3(4) of the scheme allows a joint account with a spouse only, and paragraph 3(6) attributes the whole deposit to the first account holder. That rule governs the scheme’s deposit limit; for tax, the interest is income of the person whose money it is. Where one spouse funds an account in the other’s name without adequate consideration, Section 99(1)(a)(ii) of the Income-tax Act 2025 includes the income in the transferor’s total income.
Death. Paragraph 7(2) closes the account on the depositor’s death and pays the deposit with interest at the scheme rate to the date of death, then at the Post Office Savings Account rate. Interest to the date of death is the deceased’s income and goes in the return filed for the deceased; interest after it belongs to the nominee or legal heir. The second proviso to paragraph 7(2), as substituted in 2023, lets a spouse who is joint holder or sole nominee continue the account on the same terms if the spouse is eligible to open one, and the interest from then on is the spouse’s income.
Extension. Paragraph 8, as amended by G.S.R. 829(E) dated 7 November 2023, allows the account to be extended for blocks of three years on an application in Form-4 within one year of maturity or of the end of each block. Extension is not a new deposit, so it earns no new Section 123 deduction, and it does not restart the five-year period in paragraph 5 of Schedule XV.
Depositors aged 55 to 59 and defence retirees
The scheme admits three groups below 60, and none of them is a senior citizen for income tax.
| Depositor | Scheme eligibility | Section 153 deduction on the interest | Deduction at source threshold | Form No. 121 above the basic exemption |
|---|---|---|---|---|
| Resident aged 60 or more | Paragraph 3(1)(i) | Up to Rs. 50,000, Section 153(2)(b) | Rs. 1,00,000 | Allowed if estimated tax is nil |
| Retiree aged 55 to 59 | Paragraph 3(1)(ii), within three months of retirement benefits | None; Section 153(2)(a) excludes time deposits | Rs. 50,000 | Barred |
| Retired defence personnel aged 50 to 59 | Proviso to paragraph 3(1) | None | Rs. 50,000 | Barred |
| Spouse of an employee who died in harness | Second proviso to paragraph 3(1) | Only if the spouse is 60 or more | By the spouse’s age | By the spouse’s age |
Tax position of Senior Citizens’ Savings Scheme depositors by age, Income-tax Act 2025, tax year 2026-27.
The change at 60 happens inside the account’s life. A retiree who opens an account at 57 becomes a senior citizen in the tax year in which they turn 60, under Section 2(100), and from that year the interest qualifies for Section 153(2)(b) and the Rs. 1,00,000 threshold.
A retiree aged 55 to 59 is limited by the proviso to paragraph 4(1) to the retirement benefits received, and the 2023 Explanation lists them: provident fund dues, retirement, superannuation or death gratuity, commuted value of pension, cash equivalent of leave, the savings element of group insurance, and voluntary retirement ex-gratia. For a central government employee, the gratuity, the commuted value of pension and the leave encashment among them are fully excluded from tax under Section 19(1) Table serials 3, 7 and 13 of the Income-tax Act 2025.
Worked example: a pensioner investing retirement money
A retired Under Secretary deposited Rs. 30 lakh in February 2024, at 62, at the 8.2% rate fixed on the date of deposit. Paragraph 5 of the scheme pays Rs. 61,500 a quarter, Rs. 2,46,000 a year. In 2026-27, now 64, the pensioner draws a pension with dearness relief of Rs. 9,00,000, has no other income, and pays a Rs. 50,000 health-insurance premium. The deposit was deductible only in 2023-24, the year it was made, and under Section 80C(2)(xxiii) of the 1961 Act, because Section 123 applies only from 1 April 2026.
| Step | New regime (Rs.) | Old regime, 60 to 79 (Rs.) |
|---|---|---|
| Pension less standard deduction | 8,25,000 | 8,50,000 |
| Scheme interest | 2,46,000 | 2,46,000 |
| Gross total income | 10,71,000 | 10,96,000 |
| Section 153(2)(b) | Not allowed | 50,000 |
| Section 126, health insurance | Not allowed | 50,000 |
| Total income | 10,71,000 | 9,96,000 |
| Slab tax | 47,100 | 1,09,200 |
| Rebate, Section 156 | 47,100 | Nil |
| Cess at 4% | Nil | 4,368 |
| Tax payable | Nil | 1,13,568 |
Tax year 2026-27, Table to Section 202(1) of the Income-tax Act 2025 and Paragraph A(II), Part I-B, First Schedule, Finance Act 2026. Computed by salary-calculator.in.
In the new regime the interest is taxed in full and the Section 156(2)(a) rebate cancels the tax, because total income is under Rs. 12,00,000. The estimated tax is nil, so the pensioner can give the post office Form No. 121 and receive the Rs. 2,46,000 without deduction, even though it is above the Rs. 1,00,000 threshold. Without the declaration the post office deducts tax at source, and the pensioner recovers it only through a refund claimed in the return.
In the old regime the scheme gives Rs. 50,000 of deduction on Rs. 2,46,000 of interest, and the pensioner pays Rs. 1,13,568. The old regime therefore costs this pensioner Rs. 1,13,568 a year more than the new.
Common misreadings
“SCSS interest is tax-free for senior citizens.” It is taxable in full. Up to Rs. 50,000 of all bank and post office interest together can be deducted under Section 153(2)(b), in the old regime only.
“The deposit is deductible up to Rs. 30 lakh.” Rs. 30 lakh is the scheme’s deposit limit. The tax deduction is within the Rs. 1,50,000 ceiling of Section 123, shared with every other Schedule XV item.
“No tax is deducted on SCSS.” Tax is deducted above Rs. 1,00,000 a year for a senior citizen and Rs. 50,000 for anyone else, unless Form No. 121 is given.
“Closing early costs only the scheme penalty.” Where the Section 123 deduction was claimed, paragraph 5 of Schedule XV taxes the amount withdrawn within five years of deposit.
“A 58-year-old retiree gets the senior-citizen benefits on SCSS.” The scheme admits the retiree; the Income-tax Act 2025 does not treat them as a senior citizen until 60.
“Form 15H stops TDS on SCSS.” For interest from 1 April 2026 the declaration is Form No. 121.
Frequently Asked Questions (FAQs)
Is Senior Citizens' Savings Scheme interest taxable?
Does the SCSS deposit qualify for the Section 80C deduction?
Is SCSS deductible in the new tax regime?
Is SCSS interest covered by Section 80TTB?
When is tax deducted from SCSS interest?
Can Form 15H be given for SCSS interest?
What happens to the tax if SCSS is closed early?
Is the maturity amount taxable?
Who pays the tax on a joint SCSS account?
How is a retiree aged 55 to 59 taxed on SCSS?
What is the maximum SCSS deposit?
What happens to SCSS tax after the depositor dies?
Does extending the SCSS account change the tax?
Related Articles
- Senior citizen tax
- Section 80TTB
- Section 80C
- Super-senior citizen taxation
- Section 80DDB
- Section 80D
- Section 194P
- Income tax for pensioners
- Income-tax Act 2025
- Old tax regime
- New tax regime
- Old vs new tax regime
- Deductions allowed in the new tax regime
- Section 87A rebate
- Standard deduction
- Form 26AS
- Self-assessment tax
- Advance tax
- Central government pension
- Commutation of pension
- Gratuity for central government employees
- Leave encashment
- Voluntary retirement
- Family pension
- Re-employed pensioner taxation
- Income tax for government employees
External references
- National Savings Institute, Senior Citizens’ Savings Scheme
- India Post, savings schemes
- Department of Economic Affairs, small savings interest rates
- Income Tax Department, Income-tax Act 2025 and Rules
- The Gazette of India
- Income-tax e-filing portal
References
- Senior Citizens’ Savings Scheme 2019, G.S.R. 916(E), 12 December 2019, as amended by G.S.R. 287(E), 5 May 2020; G.S.R. 240(E), 31 March 2023; and G.S.R. 829(E), 7 November 2023.
- G.S.R. 912(E), 12 December 2019 (rescission of the Senior Citizens Savings Scheme Rules 2004).
- Income-tax Act 2025 (No. 30 of 2025), Section 123 with Schedule XV paragraphs 1(u), 4 and 5; Section 153; Section 2(100); Section 99(1)(a)(ii); Section 202(2)(a)(xii).
- Income-tax Act 2025, Section 393(1) Table serial 5(ii), Section 393(6) with the Note to its Table, and Section 393(7) as substituted by the Finance Act 2026.
- Income-tax Rules 2026, rule 211 and Form No. 121, rule 245 and Form No. 168.
- Department of Economic Affairs (Budget Division) OM F. No. 1/4/2019-NS, 30 September 2026 (small savings rates for 1 October to 31 December 2026).