State Bank of India (SBI), one of India’s largest public sector banks, is urging the government to provide a full tax rebate on the interest earned by senior citizens on their deposits. The bank estimates that senior citizens have earned a staggering Rs 2.7 lakh crore in interest, and by assuming an average tax payment of 10%, approximately Rs 27,106 crore could be collected as tax revenue. SBI argues that granting a full tax rebate on these earnings would not impact the government’s fiscal deficit and would be a fair measure to support senior citizens.
Rising Deposit Rates and Special Schemes:
The surge in deposit rates, coupled with higher interest rate differentials for senior citizens, has led to a significant increase in deposit accretion among this demographic. SBI highlights the success of special deposit schemes such as WE-CARE, along with government initiatives like the Senior Citizen Savings Scheme (SCSS) and Mahila Samman Savings Certificate, in driving this growth.
According to the SBI Ecowrap report, there are approximately 74 million senior citizen term deposit accounts in the country, with a total deposit amount of Rs 34 lakh crores. Out of these accounts, nearly 73 million have deposits up to Rs 15 lakh. Assuming a 7.5% interest rate on senior citizen bank deposits, the interest earned amounts to Rs 2.6 lakh crore.
Tax Rebate Proposal:
The total interest earned by senior citizens, including Rs 13,299 crore from SCSS and Rs 2.5 lakh crore from senior citizen bank deposits, stands at Rs 2.7 lakh crore. SBI suggests that granting a full tax rebate on this amount would not only benefit senior citizens but also have no impact on the government’s fiscal deficit.
The report highlights the substantial growth in the number of senior citizen term deposit accounts and their total value over the past six years. In 2018, there were approximately 41 million accounts with a total deposit of Rs 14 lakh crores. This represents an 81% increase in the number of accounts and a 150% increase in deposit amounts.
Eligibility criteria for the Senior Citizen Savings Scheme (SCSS) in India
- Age Requirement: To be eligible for the SCSS, an individual must be 60 years of age or above at the time of opening the account. Additionally, individuals who have opted for voluntary retirement schemes (VRS) and are 55 years or older but less than 60 years can also open an SCSS account within one month of receiving their retirement benefits.
- Citizenship: The SCSS is available to resident Indians as well as individuals who have attained Non-Resident Indian (NRI) status but subsequently returned to India for permanent settlement.
- Account Type: SCSS accounts can be opened individually or jointly with another eligible senior citizen. However, joint accounts can only be opened with a spouse, and both account holders must meet the age criteria.
- Deposit Limit: The maximum deposit limit for an SCSS account is Rs 15 lakh. The deposit amount must be made in multiples of Rs 1,000.
- Tenure: The SCSS has a fixed tenure of 5 years. After the initial 5-year period, the account can be extended for an additional 3 years.
- Number of Accounts: An individual can have multiple SCSS accounts, subject to the condition that the total deposit across all accounts does not exceed the maximum limit of Rs 15 lakh.
Also Read: Review of Draft circular by RBI “Amendments to PA (2)”
Government Initiatives:
The government has introduced various schemes to enhance the financial security and well-being of senior citizens. The Senior Citizen Savings Scheme (SCSS) allows senior citizens to deposit up to Rs 30 lakh for a 5-year tenure, offering an 8.2% interest rate, tax benefits, and secure investments. SCSS outstanding in H1 FY24 has reached Rs 1.62 lakh crore, reflecting a significant increase since FY14.
Additionally, banks are offering 50 basis points (bps) over the card rate for the general public. Notably, SBI and HDFC have introduced special tenure fixed deposit schemes that provide senior citizens with 75 bps higher interest rates compared to normal card rates. SBI has also launched the “SBI Green Rupee Term Deposit,” which offers an additional 100 bps for retail deposits with a tenor of 2222 days, aimed at mobilizing funds for financing green initiatives.
SBI’s proposal for a full tax rebate on the interest earned by senior citizens on their deposits is a significant step towards supporting this demographic’s financial well-being. With a substantial amount of interest income generated by senior citizen deposits, granting a tax rebate would provide them with greater financial security and stability. It remains to be seen how the government will respond to this recommendation, considering its potential impact on tax revenues and fiscal policies.
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