Bank FD vs Bond Mutual Fund: Taxation
Bank FD & Bond Fund both are fixed income securities. The most ignored part while investing in fixed income securities is the effect of taxation. This blog highlights the differences Tax Effect on Bank FD Taxes are paid on accrued interest and payable as per the individual tax brackets. Ex Mr X invest Rs 10 Lac in a bank FD yielding an interest rate of 6% ; Mr X is in a 30% tax bracket; then Mr X has to pay an average tax of Rs 18,000/Annum. The effect of tax over 5 year is as shown below Year 1 Year 2 Year 3 Year 4 Year 5 Total Interest Income 60,000 60,000 60,000 60,000 60,000 3,00,000 Tax Effect Income Income Income Income Income Tax Payable rate 30% 30% 30% 30% 30% Tax Payable (18,000) (18,000) (18,000) ...