What Is Exempt-Exempt-Exempt (EEE) In Income Tax In India?

Under the Exempt-Exempt-Exempt or EEE scheme, earnings, gains as well as withdrawals are tax-free*. It is a popular tax-saving scheme that helps in long-term financial planning.

Taxes act as fuel for government funding. They are crucial for supporting necessary public services, such as education and healthcare. While paying taxes is the responsibility of every eligible citizen within a country, high taxation can lead to a financial burden on some taxpayers. At this point, concepts like EEE come into play.

Exempt-Exempt-Exempt, or EEE, is an important concept in the taxation system that allows individuals to build wealth and save tax while complying with the regulations. Under this scheme, all investments, earnings and withdrawals remain tax-free.

Simply put, you can grow your savings and earn interest on them without worrying about paying anything to the tax authorities under the EEE scheme of Section 80C.

Let us discuss more about the EEE scheme, including EEE tax regime investment products, in detail.

What is EEE in Income Tax?

Exempt-Exempt-Exempt is a tax-exemption scheme that correlates with the deductions under Section 80C of the Income Tax Act. Certain tax-saving instruments can be utilised under this scheme to save tax on investments, interests, and maturity.

Exempt Investment: The initial investment you make towards an EEE-qualified instrument is itself exempt from income tax. This means a portion of your salary saved in these schemes escapes tax deductions, reducing your taxable income. Think of it as putting your money to work without losing a chunk to the taxman!

Exempt Interest: The interest earned on your investment within the EEE scheme also enjoys tax exemption. As your money grows with compounded interest, the accrued gains remain untouched by the tax net. This allows your nest egg to flourish tax-free, accelerating your wealth accumulation.

Exempt Maturity Proceeds: The cherry on top? The final payout – the maturity proceeds you receive upon completion of the investment tenure – is also exempt from income tax. You reap the full rewards of your investment, principal and interest combined, without facing any tax liability.

Top EEE Investment Options to Consider

PPF

Perhaps the safest and most popular tax-saving scheme that has benefited individuals for decades is the PPF. It is still a highly sought-after investment option among taxpayers due to its risk-free nature.

Backed up by the Central Government, it offers an opportunity to earn tax-free returns. You can open a PPF account in the bank or any local post office or nearest bank.

Note that this scheme has a 15-year initial lock-in period. Once the plan reaches maturity after 15 years, you can extend the tenure in a block of five years. Under Section 80C, PPF offers tax deductions up to ₹1,50,000 per annum but limitation is on the withdrawals.

Unit Linked Insurance Plans (ULIPs)

ULIPs**, or Unit Linked Insurance Plans, are known for offering a variety of investment features and benefits. Some of the most attractive features of ULIPs include automatic portfolio management, goal safety, and multi-fund allocation.

In general, most ULIPs offer around 5 to 9 fund options with different asset and equity allocations. Further, they usually come with a lock-in period of five years, but you can extend it up to 20 years, depending on your preferences. Besides Section 80C deductions, ULIPs also offer exemptions on death benefits under Section 10(10 D). Here, the catch is that maximum about invested in ULIP can not exceed 2.5 Lakhs per annum.

Equity Linked Savings Scheme (ELSS)

It is another EEE investment option that can be used for saving tax. Note that it allows you to enjoy tax-free capital gains up to ₹1,00,000. However, as your gains exceed ₹1,25,000, you will have to deal with long-term capital gains tax (LTCG) at the rate of 12.5%.

Sukanya Samriddhi Yojna (SSY)

Sukanya Samriddhi Yojna was introduced as a part of the “Beti Bachao Beti Padhao” initiative of the government. It aims at assisting the guardian of a female child to raise funds for her future. You can have an SSY account in the name of your girl child, offering an annual interest rate of 7.6%. Note that the maturity amount and the interest earned are tax-free under this scheme.

Employee Provident Fund (EPF)

Finally, EPF, or simply PF, is a retirement program that falls under the EEE scheme. In this option, employers and employees are eligible for interest and are not subject to tax implementations under certain conditions. If you withdraw your EPF amount after its maturity, all your contributions, interests and withdrawals remain tax-free.

Final Thoughts

Exempt-Exempt-Exempt (EEE) has become a popular tax-saving option among taxpayers. Investing in products under the EEE scheme helps you maximise your earnings and gains while minimising your tax liabilities.

In this blog, we have discussed the top EEE investment options to choose from. Now, it is your turn to make the right choice considering your financial situation, annual income, long-term financial goals, and other deductions under Section 80C.

Our take is to go with ULIP as it gives following benefits:

1. Option to invest in Equity Market/Debt funds where scope of returns is more than tradtional investments. Funds can be choosen basis the risk appetite.
2. Switchs between Equity/Debt funds allowed without paying LTCG which is 12.5% on returns earned or STCG which is @ 20.00%.
3. Flexibility to withdraw full amount after 5 years completion and fulfill your all medium term needs.
4. No hassles of Tax Harvesting as returns are tax free if if annual investment was made not more than 2.5 Lakh per annum.

We hope it helps!

Regards, GYC by Dinesh Aneja