EEE, EET and ETE investment schemes

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Any investment that you make broadly involves 3 types of transactions,

  • Contribution, where you invest the initial amount
  • Accumulation, when the investment amount grows and you receive interest/dividend and,
  • Withdrawal, when you withdraw the investment

Investment schemes are typically classified into three categories: EEE, EET, and ETE, depending on which transactions are exempt from taxes and which ones are taxable. The “E” denotes exempt and the “T” stands for taxable.

So, if some investment is a EEE scheme, this means that all of these three transactions, i.e., contribution, accumulation and withdrawal are exempt from taxes. Similarly, ETE and EET schemes mean that 2 components are exempt from taxes but either the interest received or maturity amount is taxable.

Let’s understand in detail.

EEE- Exempt Exempt Exempt

One of the most common examples of a EEE scheme is Public Provident Fund (PPF).

When you invest in PPF, you are eligible for a deduction u/s 80C, which marks the first E, where the contribution offers a tax deduction. Later, the interest received and the withdrawal amount are also exempted from taxes.

Another example of a EEE scheme could be SSY, which is the Sukanya Samriddhi Yojana.

ETE- Exempt Taxable Exempt

Here, as mentioned before, the investment amount is exempt and is eligible for a tax deduction. Moreover, the maturity amount is also exempted from taxes. So, if you have invested in an instrument with ETE status, then only the interest component of your investment will be taxable.

An example of ETE scheme is Tax-saver FDs.

These FDs are eligible for a deduction u/s 80C and the maturity amount is completely tax-free. However, the interest amount that you receive is reported under the ‘income from other source’ head and is taxable as per the applicable slab rate.

EET- Exempt Exempt Taxable

These are similar to ETE schemes, the only difference here is, that the withdrawal amount is taxable instead of the interest component. Some of the most common examples are ELSS funds and NPS (National Pension Scheme).

If you invest in ELSS mutual funds, you get a deduction u/s 80C, and later on, when you sell those mutual funds units, the profits that you earn will be treated as capital gains and the same will be taxable at a flat 10%.

Similarly, in the case of NPS, you get a deduction u/s 80CCD for your as well as your employer’s contribution. On retirement, you can withdraw up to 60% of the accumulated corpus tax-free. However, the remaining 40% needs to be invested in an annuity plan, the income from which would be taxable at slab rates.

What other schemes can you think of that fall into these categories?