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.
Exempt Exempt Exempt, better known as EEE is a category wherein:
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.
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.