Exempt Exempt Exempt (EEE)

Exempt Exempt Exempt (EEE) means all three transactions investment, interest/return and maturity are tax-exempt in the instrument.
Exempt Exempt Exempt (EEE)
3 min
27-June-2024

EEE or Exempt-Exempt-Exempt is a tax category that offers tax exemptions on investment, interest (return), and the maturity amount. This popular tax-saving category includes several investment vehicles, including PPF, ULIPs, EPF, ELSS, and SSY.

In this article, we uncover what is Exempt-Exempt-Exempt to help investors discover investment opportunities while lowering their tax liabilities.

What is EEE in income tax?

EEE in income tax corresponds to tax benefits extended to certain types of investments, including PPF, ULIPs, and ELSS. The acronym EEE means ‘Exempt-Exempt-Exempt’ in income tax. The first ‘exempt’ indicates that the investor’s contribution is eligible for tax deductions. The second ‘exempt’ indicates that the interest earned on the principal during the investment period is also tax-free. The last ‘exempt’ signifies that the lump-sum amount withdrawn upon maturity is also free from taxation. In other words, EEE in income tax helps investors save on taxes vis-a-vis the investment, returns, as well as the maturity proceeds.

Also read about: Income Tax Slab for FY 2024-25

Top 5 tax-free investment options for EEE

Investors in India can choose from the top 5 tax-free EEE investment options listed below:

1. Public Provident Fund (PPF)

Public Provident Fund is one of the most popular Exempt-Exempt-Exempt investment vehicles in India. PPF contributions of up to Rs. 1.5 lakhs in a financial year qualify for tax deductions u/s 80(C) of the Income Tax Act 1961. Additionally, the maturity amount, as well as the interest earned on the investment, are tax-free. Investors can open a PPF account with a minimum deposit of Rs. 500 and earn tax-free and guaranteed returns. PPF investments have a minimum lock-in period of 15 years, making the scheme a preferred investment avenue for long-term investment objectives like retirement planning.

2. Unit Linked Insurance Plans (ULIPs)

Unit Linked Insurance Plans are insurance-cum-investment products that offer investors multiple benefits, including Exempt-Exempt-Exempt tax benefits. A part of the ULIP premium paid is invested into market-linked assets, while the remaining is used to offer a protective life cover. Depending on your risk appetite and investment goals, you can choose from the different fund options with differing equity and debt allocations. Additionally, while ULIPs come with a lock-in period of 5 years, terms can be extended up to 20 years or longer. Contributions made to ULIPs are tax-free u/s 80(C) for up to Rs. 1.5 lakhs, while the maturity and death benefit payout from the plan are also tax-exempt u/s 10(10D).

Note: For ULIPs bought on/after 1st February 2021, if the premium paid for the plan is more than Rs. 2.5 lakhs, the returns will be taxed according to the ULIP’s composition.

3. Equity Linked Savings Scheme (ELSS)

Investing in mutual fund schemes like ELSS is a great tax-saving option for investors seeking to grow their corpus in a tax-efficient manner with equity-linked investments. ELSS are mutual funds that primarily invest in equities and equity-related products. Due to their focus on equity, they are exposed to significant market volatility and risks, which can potentially result in higher returns. ELSS investments qualify for tax deductions under the general Rs. 1.5 lakh ceiling of section 80C. However, if your ELSS investment is withdrawn during the 3-year lock-in window, the withdrawn sum becomes taxable. Furthermore, no long-term capital gains tax (LTCG) is applicable on ELSS returns of up to Rs. 1 lakh/year. Earnings beyond this threshold are taxed at a rate of 10%.

4. Sukanya Samriddhi Yojna (SSY)

The Indian government launched the Sukanya Samriddhi Yojana under the ‘Beti Bachao Beti Padhao’ campaign to encourage parents to save for the future financial security of their daughters. Under the scheme, parents/guardians of a girl child below the age of 10 can open an SSY account to save for her education and marriage expenses. In addition to offering the highest interest rates among small savings schemes, SSY accounts also offer Exempt-Exempt-Exempt tax benefits to investors. Contributions made to the account qualify for section 80(C) deductions. The interest earned and maturity amount are also tax-exempt.

5. Employee Provident Fund (EPF)

Every company employing more than 20 employees must register with the EPFO and offer EPF benefits to its employees. The employer is required to contribute 12% of the employee’s salary to the EPF account, and the employee must match this contribution. EPF enjoys Exempt-Exempt-Exempt taxation status provided certain conditions are met. The employee’s contribution to EPF is tax-free under the section 80(C) limit. The interest earned on the principle plus the maturity amount is also tax-free.

Note: The Indian government revised EPF taxation rules with the 2021 Budget, whereby employee contributions exceeding Rs. 2.5 lakhs in a financial year are now taxable.

Benefits of EEE for investors

The Exempt-Exempt-Exempt tax status of investments is beneficial for investors looking to reduce their overall tax liabilities. These investment options offer triple tax benefits at every stage—throughout the contribution period, accumulation stage, and on maturity. This reduces the tax burden on the investor and potentially increases the net return on the investments. Additionally, most EEE investments are long-term investments that also allow investors to benefit from the power of compounding without losing out due to high tax rates.

Times when taxes are due in India

To understand EEE in income tax, it is essential to acknowledge when taxes are due in India. We have summed up the three junctures when taxes on investments are payable:

  • When you invest for tax purposes
    The first instance is when you, as an investor, make contributions to an investment vehicle. If the investment vehicle falls under the Exempt-Exempt-Exempt (EEE) category, your contribution will be tax-free (usually up to a certain limit).
  • When you earn interest or a return on your investment
    Taxes are due on the interest earned on the principal invested during the accumulation period. For EEE investments, the interest generated on the principal amount and returns are also tax-free.
  • When you withdraw a lump sum amount
    Lastly, taxes are generally due when you withdraw the maturity amount at the end of the term. For EEE investments, such lump-sum withdrawals are also tax-free.

Conclusion

Exempt-Exempt-Exempt investments have emerged as lucrative investment avenues that allow you to maximise your gains while minimising your tax liabilities. Investing in tax-saving schemes like PPF, ULIPs, ELSS, SSY, and EPF allows investors to accumulate long-term wealth in a tax-efficient manner. Each of these EEE investment vehicles offers different features and benefits. Thus, as an investor, you must thoroughly assess them to choose the right investment vehicle that suits your investment goals and objectives.

Whether you are looking to save on taxes with ELSS funds or diversify your portfolio with other mutual fund schemes, you can rely on the Bajaj Finserv Mutual Fund Platform. On this intuitive and easy-to-use platform, you can compare mutual funds to choose the best fit and start investing via SIPs or lump-sum investments. Additionally, you can access the online mutual fund calculator tool to estimate your returns and tailor your investment portfolio and approach accordingly.

Essential tools for mutual fund investors

Mutual Fund Calculator Lumpsum Calculator SIP Calculator Step Up SIP Calculator
SBI SIP Calculator HDFC SIP Calculator Nippon India SIP Calculator ABSL SIP Calculator
Tata SIP Calculator BOI SIP Calculator Motilal Oswal Mutual Fund SIP Calculator Kotak Bank SIP Calculator

Frequently asked questions

Which investment is exempt, exempt, exempt?
EEE investments offer tax exemptions on the investment, return/interest, and maturity amount. PPF, ELSS, ULIPs, SSY, and EPF are popular EEE investment vehicles.
What are exempted mutual funds?
In the Indian context, tax-exempt mutual funds are ELSS funds that offer tax deductions u/s 80(C) as well as zero long-term capital gains taxes (up to a certain threshold).
Is ELSS exempt-exempt-exempt?
ELSS or Equity Linked Savings Schemes are mutual fund schemes that fall under the Exempt-Exempt-Exempt category. In other words, the invested amount is subject to tax deductions of Rs. 1.5 lakh u/s 80(C). The interest earned qualifies for exemption u/s 10(35), and no long-term capital gains tax is applicable on maturity proceeds of up to Rs. 1 lakh/year.
Which mutual fund is exempted from income tax?
ELSS mutual funds are exempted from income tax since these investments fall under the EEE category.
What is 80C EEE status?
The EEE status corresponds to the tax deductions available on certain investment vehicles u/s 80(C) of the Income Tax Act 1961. Under this section, deductions of up to Rs. 1.5 lakh are applicable on eligible investment contributions. EEE investments also enjoy exemptions on the interest earned and the maturity sum (under different sections of the Income Tax Act).
Is NPS EEE or EET?
Prior to the Union Budget 2019, NPS enjoyed an EET status. In other words, the contribution and interest earnings were tax-free, but the withdrawal amount was fully taxable. Post 2019, the entirety of the 60% corpus withdrawal at maturity has become tax-free. Thus, in 2024, NPS qualifies under the EEE category.
Does EPF come under EEE?
Yes. EPF contributions of the employee are deductible from their income, no tax is applicable on the interest earned, and the maturity amount is also tax-free. However, starting from FY2021-22, if employee contributions exceed Rs. 2.5 lakhs in EPF and VPF accounts, the interest earned on the excess amount is taxable.
Is ELSS an EEE category?
Yes. ELSS are equity-focused mutual fund schemes that fall in the EEE category in income tax calculations.
What is the difference between ETE and EET?
ETE status signifies tax-free contributions and withdrawals, but the interest earned on the investment is taxable. EET, on the other hand, signifies tax exemptions during the contribution and accumulation stages but taxable withdrawals.
What is the meaning of EEE in PPF?
EEE in PPF means Exempt-Exempt-Exempt. In other words, all PPF contributions are eligible for tax deductions u/s 80(C), interest earned on the invested sum is tax-free, and even withdrawals on maturity are tax-exempt.
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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.