Understand Exempt-Exempt-Exempt (EEE) In Income Tax In India

What is EEE in Income Tax?

The income tax department of India has given EEE tax benefits to investments such as PPF, EPF, ULIP, etc. EEE stands for Exempt-Exempt-Exempt. It means the investor will get the tax benefit at the time of contribution, return on investment, and withdrawal time. 

There are three times when taxes are due in India: 

• When you invest for tax purposes: The first E in EEE indicates that your investment is eligible for deduction at the time of contribution. As a result, the portion of the investor’s salary that goes toward purchasing an EEE investment instrument is tax-free.
• When you earn interest or a return on your investment: The second E in EEE indicates that you are exempt from paying taxes on any returns or interest generated during the accumulation phase.
• When you withdraw a lump sum amount: The third E in EEE indicates that even the withdrawal amount from the instrument at maturity will be tax-free.

5 Tax-Free Investment Options In EEE

Public Provident Fund (PPF)

PPF is an Exempt-Exempt-Exempt (EEE) category investment. All PPF deposits are deductible under Section 80C of the Income-tax Act, 1961. You can invest a minimum of Rs 500 and a maximum of ₹ 1.5 lakh in PPF every financial year. You can invest in a single payment or up to twelve instalments. It comes with a lock-in period of 15 years, and a loan facility is also available against PPF.

PPF was launched by the Ministry of Finance’s National Savings Institute in 1968 to save money and reduce taxes in India.

Sukanya Samriddhi Yojana

Another option is the Sukanya Samriddhi Yojana (SSY), introduced by PM Narender Modi as a part of the Beti Bachao Beti Padhao campaign. The guardian invests in the scheme for his or her daughter to create a fund for their education and marriage. 

Investors can claim a deduction under Section 80C of the Income Tax Act, 1961 (The Act) for investments up to ₹ 1.5 lakh. The interest earned from SSY is also tax-exempt under section 10 of the act. Moreover, no tax is applied to the funds received upon maturity or withdrawal.

Unit Linked Insurance Plans (ULIPs)

The ULIPs are a financial product for people who wish to save for the long term and also need a life insurance policy. It was introduced by the Unit Trust of India (UTI) in 1971, followed by the Life Insurance Corporation (LIC) in 1989. ULIPs are investment-complement insurance plans where the policyholder pays the premium; a portion is invested in the funds of their choice, and the remaining portion is used to secure their life. It comes with a lock-in period of 5 years. According to the Income-tax Act of 1961, Sections 80C and 10D, the premium you pay and the returns you get are exempt from taxes. Also, you won’t be charged extra taxes if you transfer your funds from one fund to another.

Equity Linked Savings Scheme (ELSS)

Another attractive EEE option available is  Equity Linked Savings Scheme (ELSS) Funds. It is a  tax-saving equity mutual fund.  A significant amount of ELSS’s corpus is invested in stocks of listed companies.  It comes with a lock-in period of 3 years. If the amount invested is withdrawn before 3 years, it will become taxable else, you will get the tax benefit. You can claim a deduction of up to ₹ 1.5 lakh by investing in ELSS.

Employee Provident Fund (EPF)

On November 15, 1951, the Employee Provident Fund came into existence under the administration of the Employees Provident Fund Organisation of India (EPFO). Additionally, every company employing more than 20 people must register with the EPFO. Investments made into EPF accounts get a deduction of up to ₹  1.5 lakh under Section 80C of the Act. EPF interest is tax-free but must be declared on an annual income tax return. Additionally, EPF’s maturity amount is also tax-free. 

Conclusion

Exempt-Exempt-Exempt (EEE) has become popular among taxpayers as a tax-saving investment tool. Disciplined investing in basic tax savings schemes like PPF, ULIP, and EPF can protect your financial future and allow you to maximize your profits and gains. Therefore, you should invest in these tax-saving investments to reduce tax liability while accumulating long-term wealth.

Frequently Asked Questions (FAQs)