As an individual, you are always looking for investment opportunities which will grow your capital, help you earn high interest and reduce your tax liability. In order to inculcate this habit of savings, the government of India also offers certain relief to taxpayers when they invest in a certain type of investments and up to a particular amount. An individual can choose from a wide range of tax-saving investment options which will help them create a wealth cover over a period of time.
It is critical for any individual to understand how their investment is taxed so that they can choose the best-suited option for them. The majority of these tax-saving investments are bifurcated into three categories such as EEE, EET and ETE. This article will help you understand all these three categories.
What is EEE?
Exempt Exempt Exempt, better known as EEE is a category wherein:
- The first exempt means that you do not have to pay tax on the principal amount that you invest.
- The second exempt means that the interest that you earn on such investments will also be tax-free.
- The third exempt indicates that the income that you earn from investing in such instruments is also not taxable.
Long term investment schemes such as Employees Provident Fund, Public Provident Fund, National Pension Scheme and Unit Linked Insurance Plans fall under the EEE category.
What is EET?
The full form of EET is Exempt Exempt Taxable. Here the first and second exempt means that the amount that you invest in and the returns that you generate from such investment is tax-free. However, you are liable to pay tax when you withdraw this investment.
This means that your total accumulated amount i.e. principle plus the return is taxed at the time of withdrawal on the basis of the tax slab rate you fall under.
To simplify it, let us assume that Ms Aarti falls under 30% tax bracket. She receives 7% interest on her investments then you will only get 4.9% on your investment. One such investments scheme that falls under EET is Equity Linked Savings Scheme.
What is ETE?
Exempt Taxable Exempt or ETE is a category in which the investment amount is exempt from taxation up to a certain limit. The interest earned on such investment is taxable. However, The total amount that you receive during withdrawal is exempt from taxes.
Simply put, if Ms Aarti invests in a Fixed Deposit with a maturity of 5 years. She will be taxed only on the interest that she earns during this period. The principal amount and the total amount at the time of withdrawal is exempt from taxes.
There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.
Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.
Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.
The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).
Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).
As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.
Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.
No issues. You’re welcome!
In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.
However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.
Hope, it helps!
Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?
There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?
I couldn’t find anything on this. Any help is appreciated.
Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.
Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.
These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!
Also, interest earned on these bonds will be taxable.
Hope this helps!
Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total
Hey @Sheirsh_Saxena, yes, the investment amount needs to be added under 80C.
Continue the conversation on TaxQ&A
87 more replies