Eee Eet Ete Tax Saving Investment Guide

EEE, EET, ETE Tax Saving Investment Guide

Taxpayers are encouraged to meet their tax obligations, utilising strategic investment options to effectively reduce taxable income.

Written by : Anamika Arora

Reviewed by : Jasmeet Bedi

Jasmeet Bedi

2023-03-09

2564 Views

7 minutes read

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Tax saving is often the checkpoint of investment decisions. The most common question is whether your investment amount will save you tax. However, if you are looking for investments that truly help you save tax, you need to dig deeper than this.

Table Of Content:

Three Taxable Transactions in Investments

Every investment has three universally applicable transactions:

  1. Investment of capital
  2. Growth or Interest payment (either paid out or reinvested)
  3. Maturity value

Investment of capital comes from your taxable income. So, for the most part, it is already taxable. But you can invest in instruments which will make your money deductible from your taxable income.

For example, instruments which are eligible for 80C deduction reduce your net taxable income.

Other two transactions are taxable or exempt depending on the instrument. Their taxability does not depend on the 80C exemption.

What is EEE, EET and ETE?

‘E’ in EEE investment, EET investment, and ETE investment refers to the ‘exempt’ status of the transaction, whereas ‘T’ stands for the ‘taxable’ status. So, here’s how EEE, EET, and ETE define the tax status of various investment instruments:

1. EEE: Means all three transactions are tax-exempt in the instrument

2. EET: Investment and accrued or paid interest is exempt, but maturity value is taxable

3. ETE: Investment is eligible for an exemption, accrued or paid out interest is taxable and maturity value is exempt

Thus, EEE investment options stands as the best tax saving plans. EET investment would be the second-best investment option, as you get to postpone your tax liability till maturity.

EEE Investment Options

There are a few amazing investment options in India under the EEE segment. Some of these investments are not the best investment schemes due to their tax-exempt status, but they offer a great many features too.

Some of the prominent EEE investment options in India are:

1. ULIP Schemes: ULIPs, or Unit Linked Investment Plans, are life insurance plans with a wide range of investment features. Some of the most unique features of ULIPs include multi-fund allocation, automated portfolio management, and goal safety. These are also the best investment schemes for long-term investors. ULIPs like Invest 4G from Canara HSBC Life Insurance offer free bonus units to investors who keep investing for more than five or ten years.

2. Public Provident Fund (PPF): PPF is one of the safest investment options for long-term investors. The return on the PPF account is safe but linked to market rates. The Employee Provident Fund Organisation (EPFO) declares the rate of return on PPF investments at the beginning of the financial year.

Did You Know?

In the PPF, you can invest ₹500 min to ₹1.5L yearly. You can also choose one-time or spread it across 12 instalments.

Claim Settlement Ratio

3. Equity Linked Savings Scheme (ELSS): Equity-linked savings schemes are one of the two ways you can save tax while investing in equity markets. The other one is ULIP plans. However, RGESS was also there offering tax saving but the scheme only benefits first-time equity investors. So, not apt for long-term investors.

ELSS, on the other hand, works for everyone, and you can invest over multiple years. So, if you plan to invest in equities while enjoying tax benefits, ELSS would be your go-to investment option. Every investment in the ELSS scheme has a 36-month lock-in period.

4. Guaranteed Savings Plan: Guaranteed savings plans are another offering from life insurers in India. Guaranteed plans, as the name suggests, guarantee a minimum return on the investment.

When it comes to protection benefits, these plans are very similar to ULIPs. For example, you can protect your goal value in guaranteed plans, where the insurer will invest the remaining premiums on your behalf in case of your untimely demise.

While the returns are guaranteed, with insurance, you can ensure that even the maturity value is guaranteed to your family. Thus, for important family goals like a child’s education, these plans could be the best investment schemes.

EET Investment Options

EET investments are the second-best tax saving scheme, as you get to postpone your tax liabilities for a few years. A few of the popular investments in this segment are as follows:

1. National Saving Certificates (NSC VIII-Issue): NSC also follows a fixed rate of return, which is declared at the beginning of every financial year. All the interest which accrues to the investment is reinvested in the scheme.

For taxation, interest reinvestment also qualifies for the deduction. So, as long as you stay invested in the instrument, nothing is taxed. However, the maturity value is taxable with all the gain added to your taxable income for tax estimates.

2. Pension Schemes: You can claim a deduction under section 80C for investments of up to ₹1.5 lakhs in pension schemes. The deduction applies to both deferred annuity and immediate annuity schemes.

The growth of your corpus is also not taxable. But the pension you receive is taxable at normal income tax slabs. However, pension plans also help you defer your tax liability, as there is no tax on the maturity value of the deferred annuity plan.

ETE Investment Options

ETE investments are a curious lot, as they are almost the same as EET investment. However, since the interest has been taxed already, there is no need to tax the maturity value.

Some of these investments are:

1. Five-Year Tax Saving Deposit: You can invest in a tax-saving five-year fixed deposit with your bank or nearest post office branch. Both FDs will have accrued interest every year. The interest is taxable as income in the year it is credited to your FD.

Banks are liable to deduct a 10% TDS on your FD’s interest every year. However, Post Offices can pay your interest without TDS. You should note here that Post Office FDs may ultimately result in higher maturity value due to higher reinvestment.

Conclusion

With plenty of EEE investments on the line and a ₹1.5 lakh limit on tax-saving investment, you may feel it is unnecessary to think of the other two sections. But you should know these investments as they are useful in one or the other way.

While EEE investment options offer comprehensive tax exemptions across all stages, including investment, growth, and maturity, various options like ULIPs, PPF, ELSS, and Guaranteed Savings Plans stand out for their potential long-term benefits and security. On the other hand, EET investments allow for tax deferral until maturity, encompassing instruments such as NSCs and pension schemes, which provide a balance between tax savings and delayed liability. ETE investments, while less common, offer unique benefits where interest or maturity values are exempt or taxed differently. Thus, by exploring these diverse avenues, you can effectively tailor financial strategies to maximise tax benefits while achieving long-term financial goals.

Glossary:

  • Maturity Value: The total value of an investment upon maturity, which can be taxable or exempt based on the investment's tax status (EEE, EET, ETE).

  • Unit-Linked Insurance Plans (ULIPs): These plans offer investment options. They include features like multi-fund allocation and automated portfolio management, qualifying for EEE investment benefits.
  • Public Provident Fund (PPF): It’s a secure long-term investment option in India, providing EEE investment benefits with tax-exempt contributions, interest accrual, and maturity proceeds.
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FAQs related to EEE, EET, ETE Tax Saving Investment Guide

ULIPs, PPF, ELSS, and Guaranteed Savings Plans are investment options that provide the benefit of EEE (Exempt-Exempt-Exempt) status, offering tax exemptions on investment, growth, and maturity.

PPF (Public Provident Fund) is an EEE (Exempt-Exempt-Exempt) investment option, meaning contributions, interest earned, and maturity proceeds are all tax-exempt under Indian tax laws.

EPF (Employee Provident Fund) does not fall entirely under the EEE (Exempt-Exempt-Exempt) category. While the contributions and interest earned are tax-exempt, the maturity proceeds are taxable if withdrawn before completing five years of continuous service.

No, funds withdrawn from EET investment options such as NSC and pension schemes are typically subject to tax implications, especially at the time of maturity or withdrawal.

No, National Saving Certificates (NSCs) do not offer immediate tax benefits. The interest earned on NSCs is taxable annually, although the investment qualifies for deduction under Section 80C of the Income Tax Act.