TAXATION OF FIXED DEPOSITS AND DEBT MUTUAL FUND

 

In evrey investment taxation aspect is important element in decision making process. Here we discuss tax impact over fixed deposit and debt mutual fund. Fixed deposit and debt mutual fund both are safe and generate regular income. Interest earned in fixed deposit is taxed at normal slab rate of the investor where as in case of debt mutual fund taxation is different. Appreciation of value of debt mutual fund is known as capital gain. When holding period of debt mutual fund is less than three years it is known as short term capital gain and taxed at normal rate but if holding period is more than three year gain is long term capital gain and taxed at 20% after indexation.

This example gives you more clarity. Here we assume that holding period is 10 years and invested amount is 10 lakhs.

From the above example it is clear debt fund are more tax efficient than fixed deposit. But one thing one should consider debt funds are not 100% risk free in terms of volatility. in practical seance it is market linked product and their NAV fluctuate as per the movement of bond yield. So in debt mutual fund return can be vary little bit.