On October 16, I conveyed the good news that the Senior Citizens Saving Scheme is to be handled by designated public sector banks. I also pointed out were several shortcomings of the scheme, arising mainly out of wrong interpretations of various rules governing the SCSS.
Fortunately, the authorities have taken very quick cognisance of these and issued clarifications through RBI/2004-05/229 CO.DT.No. 15.15.001/H.3764-86/2004-05, dated October 21, 2004.
Limit on joint holdings
Some post offices were importing rules regarding limits on investment in Monthly Income Scheme in joint accounts to the limits applicable for the SCSS.
Consequently, two joint applications -- one in the name of the husband and wife and the other in the name of wife and husband -- were not accepted on the grounds that the limit of Rs 15 lakh is applicable to both the accounts put together.
Even where the total was well within the limit, the two joint accounts were treated as one account and therefore, the second account was not allowed to be opened in the same deposit office during the same calendar month.
This was arbitrary, unreasonable and violative of natural justice. So long as the rule is free from ambiguity, the words used should be given their plain meaning without importing into it any foreign provisions from an unrelated savings scheme.
Now the authorities have issued a clarification stating, "In the case of a joint account, age of first applicant is the only factor to decide the eligibility to invest under the scheme.
There is no age bar or limit for the second applicant or the joint holder (i.e., the spouse). The whole amount of investment in an account under the scheme is attributed to the first applicant only. Question of any share of the second applicant, therefore, does not arise -- (Rule-3(3)).
Both the spouses can open individual and/or joint accounts with each other with the maximum deposits up to Rs 15 lakh each, provided both are individually eligible to invest under relevant provisions of the rules governing the scheme."
Post-maturity continuation
Within one year of its maturity, the depositor may apply for its one-time extension of three years. Irrespective of the date of application, extension of the account shall be deemed to have been made from the date of maturity.
Under such a situation, the account shall earn interest at the rate applicable to the new accounts prevailing at that juncture. For accounts which are neither closed nor extended at maturity, post-maturity interest at the rate applicable to Post Office Savings Bank accounts from time to time shall be paid till the end of the month preceding the month of closure.
No time limit has been prescribed for such a delay. The amount of excess interest paid (at higher rate applicable to the deposits under SCSS), after maturity, shall be deducted -- Rule 7(9).
In the case of death of a depositor before maturity, the account shall be closed and deposit refunded along with interest till the end of the month preceding the month in which refund is made, to the nominee or legal heirs.
Premature closure
The depositor may be permitted to withdraw the deposit and close the account after the expiry of one year from the date of opening of the account subject to:
a) In case the account is closed after the expiry of one year but before two years, an amount equal to one and a half per cent of the deposit shall be deducted.
b) In case the account is closed on or after the expiry of two years, one per cent of the deposit shall be deducted.
The depositor availing the facility of extension of the account may be permitted to withdraw the deposit and close the account at any time after the expiry of one year from the date of extension of the account without any deduction.
No partial withdrawals are permitted since this will lead to confusion and also distort the interest calculations and payments by the deposit offices from time to time. There is, however, no bar on the depositors for opening of new multiple accounts within the overall ceiling of Rs 15 lakh.
Nomination
The depositor may, at the time of opening of the account, nominate a person or persons who, in the event of death of the depositor, shall be entitled to receive the payment due on the account.
If nomination is not made at the time of opening of the account, it may be made at any time before its closure.
Nomination is available in the case of joint account also. However, in such a case, the nominee's claim shall arise only after the death of both the depositor and the joint holder.
No fee is to be charged for nomination and/or change/cancellation of nomination since no such fee has been specified -- Rule 6.
ECS or post-dated cheques
The Department of Posts is offering the facility of Electronic Credit System in computerised post offices and also providing the facility of post-dated cheques to the subscribers of POMIA scheme.
Similar facilities are to be provided to the subscribers of the SCSS also.
Also, instead of clubbing the interest payments to the last day of the quarter of the calendar year, interest may be paid on completion of a quarter from the date of deposit.
It is not clear whether the investor has a choice in this matter or whether the latter mode of payment of interest will be adopted in all cases.
The proposal to issue post dated cheques or warrants towards repayment of principal on maturity will be examined in detail separately in consultation with the Department of Posts as well as RBI.
Proof of age
Ration cards, Voter Identity cards, not bearing date of birth, can be accepted as age proof as these documents carry age on the date of issue.
SCSS to be handled by banks
When the SCSS was launched, I observed that it's only drawback was that it would be handled by the post offices.
Fortunately, through Notification RBI/2004-05/213, CO.DT.No, 15.02.001/H.3484-3520/2004-05, dated October 7, 2004 RBI has declared that the SCSS which was operated by post offices ever since its launch on August 2, 2004, will now also be operated through all the branches of public sector banks which are operating the Public Provident Fund scheme.
The involvement of the agency banks in operation of SCSS would be on the same lines as of PPF.
Income tax & wealth tax
No income or wealth tax deduction and/or exemption is admissible under the scheme. The existing income tax provisions shall apply.
This statement is self-contradictory. The author of this clarification is obviously not aware of the large-scale amendments incorporated by FA92 making 'productive assets' exempt from wealth tax.
Consequently, investments in shares, debentures, UTI, MFs, NSCs, POMIS, etc., are exempt from wealth tax. SCSS is a productive asset as defined by Wealth Tax Act and therefore it is clearly exempt from wealth tax. Another clarification has now become necessary.