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Business News/ Topic / Kerala-floods/  De-jargoned: EEE, EET, ETE

De-jargoned: EEE, EET, ETE

These are the three ways in which your money is taxed at various stages of investment.


What are these?

These are the three ways in which your money is taxed at various stages of investment. When you make an investment, your money goes through three stages: when you contribute to an investment vehicle, when the money earns interest or returns and when you withdraw the lump sum which is a sum of your principal and interest or return. There is a tax implication for your money at each of these stages.

What is EEE?

EEE stands for exempt, exempt, exempt. Here, the first exempt means that your investment is allowed for a deduction. So, you don’t have to pay tax on part of the salary that equals the invested amount. Similarly, the second exempt implies that you don’t have to pay any tax on the returns earned during the accumulation phase. The third and final exempt means that your income from the investment would be tax-free in your hands at the time of withdrawal.

EEE status is generally enjoyed by long-term investment vehicles, such as Public Provident Fund and Employees Provident Fund. Currently, other instruments such as equity-linked savings schemes (ELSS) and life insurance policies also enjoy the EEE status. However, under the revised draft Direct Taxes Code, the New Pension System will also enjoy the EEE status, but insurance-cum-investment plans and ELSS will move to the EET category.

What is EET?

EET is exempt, exempt, taxed. Your money at the stages of contribution and accumulation is exempt from tax, which is explained by EE, but at the time of withdrawal, you need to pay a tax on it, denoted by T. Since your accumulation—principal plus return—is taxed at the time of withdrawal, your returns from such instruments come down, depending on your tax slabs. For instance, if you fall in the 20% tax bracket and the rate of return on your investment is 8%, you will lose out 20% of that return and make only 6.4% on your investment.

What is ETE?

ETE stands for exempt, taxed, exempt. If you have an instrument with this status, you would have to pay a tax only on the interest component. For example, a five-year fixed deposit (FD) enjoys the ETE status, where the amount you invest qualifies for a deduction, the interest is taxed and at the time of maturity you needn’t pay tax on your principal.

Tax benefits are usually not given at any stage on products, which do not enjoy the first E.

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Published: 19 Feb 2013, 04:38 PM IST
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