Are you in the 30% tax bracket and holding large number of FDs.
A Rs 3 Crores Fixed Deposits at 7% can generate around Rs 21L interest annually. But in the 30% tax bracket, a large part of that interest gets taxed every year.
The big issue with FDs:
1. Interest is taxed annually.
2. Tax outflow can reduce compounding.
3. Post-tax returns may become less efficient.
4. Large FD income can also impact overall tax planning.
Why some investors review Debt / Hybrid Funds: These are capital assets, so taxation generally arises when units are redeemed.
This can help with:
1. Tax deferral.
2. Better control over when gains are realised.
3. More efficient withdrawal planning.
4. Possible set-off of capital gains against eligible capital losses, where applicable.
The key idea is simple: It’s not just about returns. It’s about post-tax efficiency and cash flow planning.