Should You Still Liquidate Your SCSS Account Before Maturity? Here’s What It Will Cost

The Senior Citizens Savings Scheme (SCSS) is one of the most popular investment options for senior citizens. It comes with sovereign guarantee as it is a government scheme, and as of April-June 2025, is offering an annual rate of interest of 8.2 per cent with quarterly distributions.

One can contribute up to Rs 30 lakh individually or jointly. The account is valid for five years and can be extended for an additional three years. Moreover, investments are eligible for tax advantages up to the overall limit of Rs 1.5 lakh available under Section 80C of the Income-tax Act, 1961 under the old tax regime.

While the investment receives a tax savings benefit, the interest income is fully taxable, and tax is deducted at source (TDS) if the yearly interest reaches Rs 50,000.

What is the Senior Citizen Savings Scheme (SCSS)?

SCSS is one of the most dependable government-sponsored savings plans for Indian seniors. It was launched in 2004 and provides a steady income stream after retirement. It can be opened by individuals aged 60 and over; 55 years and over for those who have retired under superannuation or voluntary retirement scheme (VRS), and 50 years for retired defence personnel, at any post office or authorised bank.

Can You Withdraw Money from SCSS Before Maturity?

Premature withdrawal is allowed in SCSS — but it comes with conditions and penalties.

SCSS accounts have a mandatory lock-in of five years, but one can go for premature withdrawal after completing one year under the scheme.

Here’s the breakup of penalties:

1] If you close before 1 year:

• No interest is paid.

• Any interest credited earlier will be deducted from the principal.

2] If you close after 1 year but before 2 years:

• 1.5 per cent of the deposit amount is deducted as a penalty.

3] If you close after 2 years but before 5 years:

• 1 per cent of the deposit amount is deducted as a penalty.

Essentially, the longer you stay invested, the lower your penalty

Extension Option: Continue Earning Without Penalty in SCSS

After completing five years, investors can extend their SCSS account for another three years. To do this, you must submit an application within one year from the date of maturity.

During the extension period:

• You continue earning interest at the rate applicable at the time of extension.

• There’s no need for a fresh investment.

• Premature closure rules continue to apply even during the extension phase.

Exception: No Penalty in Case of Death

If the SCSS accountholder passes away before maturity, the nominee or legal heir can close the account without any penalty.

Additionally, the interest will be paid up to the date of death, and the principal will be returned without deductions.

This provision ensures that the family does not suffer financially due to premature closure.

Is Premature Closure a Good Idea In SCSS?

Liquidating your SCSS account before maturity may not be a good idea due to the following reasons.

• You will lose the benefit of high, fixed interest.

• Penalties will reduce your principal amount.

• Reinvesting the withdrawn money elsewhere might offer lower returns compared to SCSS.

Experts advise evaluating options such as taking a loan against other assets or using emergency funds before considering liquidating your SCSS deposit.

Important Features of SCSS

Keep these in mind while investing in SCSS

• Minimum Lock-In: 1 year (else, no interest at all)

• Best Time to Exit (if needed): After 2 years to minimise penalty (only 1 per cent deduction)

• Extension: Possible for 3 years after original tenure

• Interest Income: Taxable above Rs 50,000 in a financial year

Final Thoughts

SCSS remains a top choice for risk-averse senior citizens who prioritize steady income and capital safety. While premature closure is allowed, it comes with financial costs. As such, plan carefully before liquidating your deposit, and if you must, understand the penalties to make an informed decision. For those who stay invested, SCSS continues to deliver secure and predictable returns — and now, with the new withdrawal tax exemptions, it’s more beneficial than ever!