What is EET?

EET is Exempt-Exempt-Tax. This is a form of tax system used to tax the savings. There are 3 stages in savings - first you contribute a certain amount to your savings, next the benefits in the form of interest & bonus accrue to your savings and in the end, after the maturity period you withdraw your contribution & the benefits accrued. In short, we can call those stages as contribution, benefit accrual and withdrawal. In EET, contribtion and benefits accrued are exempt from tax, but withdrawals are taxed. So, what does this mean? The payment of income tax is basically delayed till the maturity of your savings.
Currently, we have EEE form of tax system in India for most forms of savings. But the Indian government is already studying the feasibility of EET system based on the proposal made in the 2005-06 budget. We should get to know shortly in the next 2 months what savings get into the ambit of EET.
Given the current performance of stock markets and its future potential, the move to EET system will force the investors to put their money into equities & equity-linked mutual funds and stay invested for atleast 1-year. This is because the dividends are not taxable and the withdrawal amount is also not taxable, if withdrawed after 1-year. Having said that, the investor should carefully select the stocks and the mutual funds so that he makes more money compared to the benefits accruable on the savings. But one should remember the fact that the amount invested in equity-related instruments is not tax-exempt in the contribution stage. So, this would become TEE form of tax system. :)