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Taxation Regimes – EEE EET ETE TEE – What do these mean?

There are different systems for tax exemption / deduction of investments, and for taxation of the income earned from it, like Exempt – Exempt – Exempt (EEE) or Exempt – Exempt -Taxed (EET).

What do these terms mean? What impact does it have on you? Read on.



We often hear about different taxation systems in the media. For example, there is a debate currently going on between the Exempt – Exempt – Exempt (EEE) and Exempt – Exempt -Taxed (EET) systems.

What do these three-letter combinations mean? And why are there three letters? Let’s find out.

Stages for tax benefit and taxation

You investment has three stages when looked at from the tax man’s angle.

Investment Stage

This is the first stage. This is the time when you actually make an investment.

Of course, there is no tax levied at the time of investment. However, there is a possibility of giving you some tax benefit / tax break for the investment that you make.

For example, if you invest something in the Public Provident Fund (PPF), you can claim deduction of that amount from your taxable income under section 80C.

(For more on saving income tax through section 80C investments, please read “Saving Income Tax – Understanding Section 80C Deductions”)


Earnings Stage

This is the second stage. This is the time when you earn from your investment. For example, you get interest on the amount invested.

Here, the tax man has to decide whether this earning would be taxed or not.

For example, interest earned on investments made in National Savings Certificate (NSC) is taxed, whereas the interest earned on investments made in Provident Fund (PF) or Voluntary Provident Fund (VPF) is not taxed.

Withdrawal Stage

This is the third and the last stage. This is the time when you withdraw the money along with the accumulated earnings.

Again, the tax man needs to figure out if this would be taxed or not.

For example, the amount that you get at the maturity of your Public Provident Fund (PPF) account is not taxed.


What do the three letters signify?

Probably you would have guessed it by now – the three letters in any taxation regime name tell you what income tax benefit is available at each of the three stages.

“E” means Exempt and “T” means Taxed.

So for an investment avenue, if there is income tax benefit available at the time of investment, the accumulated interest is not taxed, and even the withdrawal is tax-free, we say that an Exempt – Exempt – Exempt (EEE) regime is followed for that instrument.

Similarly, if for an investment avenue, there is income tax benefit available at the time of investment, the accumulated interest is not taxed, and the withdrawal is taxable, we say that an Exempt – Exempt – Taxed (EET) regime is followed for that instrument.

The taxation regimes

So what are the different taxation systems or regimes possible?

Logically, it would be all possible combinations of the two letters “E” and “T” – EEE, EET, ETE, TEE, ETT, TET, TTE and TTT.

However, tax benefits are usually not available in the second and third stage if there is no tax benefit in the first stage. So, we need to consider only the regimes starting with E.

Thus, we have EEE, EET, ETE and ETT.

Also, either your earning would be taxed when you actually earn it OR when you withdraw it, and not at both times (as that would mean that the same income is taxed twice). So, the second and third stages can’t both have the “T” status.

Thus, practically speaking, there are three taxation styles:

  • Exempt – Exempt – Exempt or EEE
  • Exempt – Exempt – Taxed or EET
  • Exempt – Taxed – Exempt or EET

(Note: Of course, there are many investments available for which there are no tax benefits – like regular bank fixed deposits and Kisan Vikas Patra (KVP). So, we can have TET or TTE system as well.

However, since there is no tax benefit available at the first stage, the question of whether the second or third stage should be taxed is not very relevant)

(To know more about fixed deposits that can help you save income tax, please read “Fixed Deposits (FD) for saving income tax through section 80C”)


Some examples

Public Provident Fund (PPF)

  • Investment: Tax-deductible
  • Accumulation: Tax-free
  • Withdrawal: Tax-free

That is, the Exempt – Exempt – Exempt or EEE regime is followed for PPF.

National Savings Certificate (NSC)

  • Investment: Tax-deductible
  • Accumulation: Taxable
  • Withdrawal: Tax-free

That is, the Exempt – Taxed – Exempt or ETE regime is followed for NSC.

Provident Fund (PF) and Voluntary Provident Fund (VPF)

  • Investment: Tax-deductible
  • Accumulation: Tax-free
  • Withdrawal: Tax-free

That is, the Exempt – Exempt – Exempt or EEE regime is followed for PF and VPF.

Some pension plans

  • Investment: Tax-deductible
  • Accumulation: Tax-free
  • Withdrawal: Taxed (The monthly pension is taxable)

That is, the Exempt – Exempt – Taxed or EET regime is followed for them.

Tax Saving Fixed Deposits

  • Investment: Tax-deductible
  • Accumulation: Taxable
  • Withdrawal: Tax-free

That is, the Exempt – Taxed – Exempt or ETE regime is followed for these FDs.

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