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Tax-saving is often the checkpoint of investment decisions. The most common question is whether your investment amount will save you tax. However, if you are looking for investments that truly help you save tax, you need to dig deeper than this.
Every investment has three universally applicable transactions:
Investment of capital comes from your taxable income. So, for the most part, it is already taxable. But you can invest in instruments which will make your money deductible from your taxable income.
For example, instruments which are eligible for 80C deduction reduce your net taxable income.
Other two transactions are taxable or exempt depending on the instrument. Their taxability does not depend on the 80C exemption.
‘E’ in EEE, EET and ETE refers to ‘exempt’ status of the transaction, whereas ‘T’ stands for the ‘taxable’ status. So, here’s how EEE, EET and ETE define the tax status of various investment instruments:
Thus, EEE stands for overall the best tax saving plans. EET investment would be the second-best investment option, as you get to postpone your tax liability till maturity.
We have a few amazing investment options under EEE segment in India. Some of these investments are not the best investment schemes due to their tax-exempt status, but they offer a great many features too.
Some of the prominent EEE investment options are:
Although, RGESS was also there offering tax saving. But the scheme only benefits the first-time equity investor. So, not apt for long term investors.
ELSS, on the other hand, works for everyone, and you can invest over multiple years. So, if you plan to invest in equities while enjoying tax benefits, ELSS would be your go-to investment option.
Every investment in ELSS scheme has a 36 months lock-in period.
When it comes to protection benefits, these plans are very similar to ULIPs. For example, you can protect your goal value in guaranteed plans, where the insurer will invest the remaining premiums on your behalf in case of your untimely demise.
While the returns are guaranteed, with insurance you can ensure that even the maturity value is guaranteed to your family. Thus, for important family goals like child’s education, these plans could be the best investment schemes.
EET investments are the second-best tax saving schemes, as you get to postpone your tax liabilities for a few years. Few of the popular investments under this segment are as follows:
For taxation, interest reinvestment also qualifies for the deduction. So, as long as you stay invested in the instrument nothing is taxed. But maturity value is taxable with all the gain added to your taxable income for tax estimate.
The growth of your corpus is also not taxable. But the pension you receive is taxable at normal income tax slabs. However, pension plans also help you defer your tax liability, as there is no tax on the maturity value of the deferred annuity plan.
ETE investments are a curious lot, as they are almost the same as ETT investment. However, since the interest has been taxed already, there is no need to tax the maturity value.
Some of these investments are:
Banks are liable to deduct a 10% TDS on your FD’s interest every year. However, Post Offices can pay your interest without TDS. You should note here that Post Office FDs may ultimately result in higher maturity value due to higher reinvestment.
With plenty of EEE investments on the line and a Rs. 1.5 lakh limit on tax saving investment, you feel unnecessary to think of the other two sections. But you should know these investments as they are useful in one or the other way.
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