ETE
A tax pattern where an investment is exempt going in and exempt on withdrawal, but the returns it earns along the way are taxed — the workbook's examples are tax-saving bank FDs and the Senior Citizen Savings Scheme.
In plain language
Track any tax-saving investment through its three moments: money going in, money growing, money coming out. Give each moment an Exempt or a Taxable label, and ETE is one specific pattern: exempt at the start, taxable in the middle, exempt again at the end.
The deduction on investing is available. The final withdrawal, of principal plus whatever interest remains, is not taxed again. But the interest earned along the way is taxed each year it accrues, whether or not it is actually paid out.
The workbook's named examples: tax-saving bank fixed deposits of five years or more, and the Senior Citizen Savings Scheme (SCSS).
How it works
The three stages for an ETE product:
Stage 1: money is invested -> Exempt (a Section 80C deduction is available)
Stage 2: the investment grows -> Taxable (interest is taxed as it accrues)
Stage 3: withdrawal of principal -> Exempt (no further tax on the principal returned)
Tax-saving bank FD (5-year lock-in): the deposit qualifies for a Section 80C deduction, up to the overall Rs 1,50,000 limit, in the year of investment. Interest is credited annually and is taxable every year it accrues, at the depositor's slab rate, under income from other sources, regardless of whether it is actually paid out or reinvested. On maturity, the principal itself is simply returned, with no further tax event.
Senior Citizen Savings Scheme: works on the same ETE pattern — deduction on deposit, annual interest taxed as it is earned, principal returned tax-free at maturity.
The workbook footnotes, as with EEE and EET, that the first "E" — the deduction — is not available under the new tax regime.
A worked example
Mrs Pillai, in the old tax regime and the 20% slab, places Rs 1,50,000 in a 5-year tax-saving bank FD paying 7% a year, compounded annually.
Stage 1 (deposit): Rs 1,50,000 deducted under Section 80C
Tax saved = 1,50,000 x 20% = Rs 30,000
Stage 2 (each year): Interest accrues and is taxed at 20%, every year, whether
withdrawn or not. In Year 1 alone: 1,50,000 x 7% = Rs 10,500
interest, taxed at 20% = Rs 2,100 tax that year.
Stage 3 (maturity): After 5 years, she receives her principal of Rs 1,50,000 back.
No further tax is charged on this Rs 1,50,000 itself.
Over the full five years she has paid tax on every rupee of interest as it accrued — unlike ELSS (EET), where nothing was taxed until the very end.
Why NISM asks about it
Chapter 7 (Concepts of Taxation), section 7.16, "Taxation Regime," defines ETE in the same passage as EEE and EET, and the accompanying table names tax-saving bank FDs and SCSS as the ETE examples. Expect a question asking you to classify a named product as EEE, EET or ETE, or a question testing whether you know that ETE interest is taxed annually on accrual, not only on receipt.
Common exam traps
- The middle "E" in EEE is a "T" in ETE. The interest is taxed as it accrues, every year — this is the single fact most often tested against ETE.
- Tax is due even if the interest is not withdrawn. Reinvested or accumulated interest on a tax-saving FD or SCSS is still taxed in the year it accrues.
- The final return of principal is genuinely tax-free — do not assume ETE means fully taxable at maturity; only the growth stage is taxed.
- Do not confuse ETE with EET — EET (like ELSS) defers all tax to the end; ETE (like a tax-saving FD) taxes the growth stage every year instead.
Check yourself
1.According to the workbook, all investment instruments are compared across which three broad parameters?
- a)Risk, return and liquidity
- b)Risk, taxation and tenure
- c)Return, cost and disclosure
- d)Safety, growth and income
Show the answer
Answer: (a) Risk, return and liquidity
All investment instruments are compared across 3 broad parameters: RISK, RETURN AND LIQUIDITY. Every comparison table in the chapter is a variation on those three.
The chapter also notes that performance data is mandated by SEBI for mutual funds and portfolio management services, and that information aggregators collect the mandatorily disclosed data and provide value added comparison services, often free.
2.What is the consequence if an insured suppresses material information at the time of taking a policy?
- a)The insurer may only increase the premium later
- b)The insurer has the right to reject the claim entirely once investigation reveals the suppression
- c)The policy becomes a defined benefit policy
- d)Nothing, provided the medical test was passed
Show the answer
Answer: (b) The insurer has the right to reject the claim entirely once investigation reveals the suppression
When a claim comes up, investigation by the insurer may throw up the facts about the information that were suppressed. BASED ON THAT, THE INSURER HAS THE RIGHT TO REJECT THE CLAIM ENTIRELY. The workbook concludes that the lower premium paid would be a COMPLETE WASTE and, more importantly, THE LOSS WILL NOT BE REIMBURSED — so when in doubt, it is safer for the insured to reveal the information rather than suppress it.
3.What is "longevity risk" in retirement planning?
- a)The risk that inflation will exceed the rate of return
- b)The risk arising from underestimating the years in retirement, meaning there may not be enough money to last the retirement years
- c)The risk of dying before retirement
- d)The risk that the employer's pension fund becomes insolvent
Show the answer
Answer: (b) The risk arising from underestimating the years in retirement, meaning there may not be enough money to last the retirement years
The years for which funding has to be provided will determine the corpus required. UNDERESTIMATING THE YEARS, OR LONGEVITY RISK, WILL MEAN THAT THERE MAY NOT BE ENOUGH MONEY TO LAST THE RETIREMENT YEARS. The years in retirement cannot be defined precisely, though life expectancy can be broadly estimated from average life expectancy for the specific gender, health conditions, genetic factors and lifestyle habits.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- EETA tax pattern where an investment is exempt going in and exempt while it grows, but taxed only when it is withdrawn or transferred — the workbook's own example is ELSS.
- EEE tax regimeA tax treatment where contributions, returns and (largely) withdrawals are all exempt from tax — the category the NPS is described as falling under, though its exit stage carries some conditions.
- Post Office Time DepositA government-guaranteed post office deposit of one, two, three or five years with a Rs 1,000 minimum and no maximum, of which only the five-year deposit qualifies for a tax deduction.