TAXATION ON VARIOUS TAX SAVINGS INVESTMENT

 

When we plan for investments one thing we generally consider what will be the taxation on such investments. If we generalize taxation on our investments, tax benefit can be divided into three categories one is investment under the EEE category, another is ETE, and last is EET. Now EEE means investments which are not taxable in all the three stages, in investment and interest accrue and maturity. In case of ETE investment and maturity is exempted but interest is taxable. Whereas in case EET investment and interest accrued is exempted but maturity is taxable.

EEE instruments

Instruments that fall under this category are tax-exempt at contribution, accumulation as well as withdrawal stage. Some example s are employee provident fund, public provident fund and sukanya samriddhi  yojana(SSY), insurance plan including ULIP also come under the EEE category. NPS partly come under EEE. The investment, interest and 60 per cent of the maturity amount qualifies for EEE. The rest 40 per cent has to be mandatorily used for buying pension products, income from which is taxable.

ETE instruments

In these instruments, the contribution and the maturity amount are tax exempt, but the interest earned is taxable. The accrued interest is taxable in the hands of the receiver and/or investor. Bank fixed deposit(FD), National Savings Certificate (NSC), Kisan Vikas Patra (KVP), as well as the Senior Citizen Saving Schemes (SCSS) fall under this category. Other instruments that come under this category include recurring deposits, post office savings scheme, post office monthly income scheme, and post office time deposits.

EET instruments                                   

In these instruments, the initial investment and the accrued interest or returns generated from the investment is exempt from tax, but the maturity amount is taxable at the time of withdrawal. Mutual funds, including equity-linked savings schemes (ELSS), come under the EET category, the annuity part of NPS may also be categorised under EET. Total amount accumulated (initial investment and return) is taxed at the time of withdrawal. The return is added to your total income and taxed ta your tax slab rate.