Tax Treatments - EEE, EET, and ETE
December 9, 2018
What are EEE, EET, and ETE tax treatments?
EEE, EET, and ETE are the most common terms you’d be listening to if you are doing some research to invest your hard earned money. But how does knowing these terms help you make a better investment decision? EEE, EET, and ETE are basically types of tax regimes which would tell you how is your preferred mode of investment option is taxed.
Your investment can be taxed at three different stages of investment:
- The Principal Amount – It is the amount that you are willing to invest on which you expect returns.
- The Interest Earned – It is the extra amount generated on top of your principal amount for keeping it invested.
- The Redemption Amount – It is basically the sum of the principal amount and the interest earned. This is the amount that you will redeem or withdraw.
Your investment options are classified into various tax regimes based on how your investment is treated for tax at different stages of investment. In this article, we are going to discuss three of those tax regimes; EEE, EET, ETE.
EEE stands for ‘Exempt – Exempt – Exempt’. Saving instruments falling under this category are eligible for tax deduction at all the three stages. In other words, The amount that you have invested, the returns accumulated and the final amount that can be withdrawn is exempted from taxes.
Employee Provident Fund (EPF), Public Provident Fund (PPF), Unit Linked Insurance Plan (ULIP), Equity Linked Savings Scheme (ELSS) fall under this category. According to the Budget 2018, ELSS is also a EEE investment as long as your gains from ELSS are less than 1 lac, the returns exceeding 1 lac will be taxed at 10 percent.
EET stands for ‘Exempt – Exempt – Tax’. Like EEE, under EET also the amount invested and the interest generated is not subject to taxation, this accounts to the EE. The T at the end is for ‘Tax’ which means that the amount to be withdrawn after maturity is taxable.
National Pension System (NPS) is categorized into EET.
ETE stands for ‘Exempt – Tax – Exempt’. Under this regime, the tax is applicable only on the interest that is generated over time. Which means, The principal amount invested in the beginning and the final amount that is withdrawn is tax-free.
Fixed Deposit (FD) is the best example of a savings instrument falling under ETE.
Now that you know about various tax treatment, I believe you’ll be able to make better investment decisions. Though your judgment should not be based on just the tax regime it falls under. There are other factors like interest rates, risk, liquidity, lock-in period, etc which should also be considered to make the most of your investment strategy.