Your FD's real return after tax and inflation

A fixed deposit at 7% feels like a safe 7%. But two things quietly take a share: income tax on the interest every year, and inflation, which shrinks what each rupee buys. What is left is the real return, and for many savers it is close to zero or below.

Step 1: tax on the interest

FD interest is added to your income and taxed every year at your slab rate, plus 4% cess. So a 7% FD grows by 7% × (1 − your tax rate): 6.27% at the 10% slab (10.4% with cess), 5.54% at the 20% slab and 4.82% at the 30% slab.

Step 2: inflation

If prices rise 6% a year, your money only buys more if it grows faster than 6%. The real return is (1 + return after tax) ÷ 1.06 − 1. Without tax, a 7% FD stays just ahead, at +0.94% a year. At the 30% slab, it falls behind by −1.12% a year.

Your slab	Tax with cess	After tax	After 6% inflation
No tax	0%	7%	+0.94%
10% slab	10.4%	6.27%	+0.26%
20% slab	20.8%	5.54%	−0.43%
30% slab	31.2%	4.82%	−1.12%

Tax with 4% cess. Real return = (1 + return after tax) ÷ 1.06 − 1.

At the higher slabs, a 7% FD loses buying power every year, even though its balance keeps growing.

Over 10 years

₹10 lakh in a 7% FD for 10 years, taxed at 31.2%, grows to about ₹16.01 lakh. That looks like a good gain. But in today’s rupees, at 6% inflation, it is worth about ₹8.94 lakh: less than you started with. Without tax, it would have grown to ₹19.67 lakh.

1. You put in₹10.00 lakh
2. Interest over 10 years+₹9.67 lakh
3. Before tax₹19.67 lakh
4. Tax, and the interest it would have earned−₹3.67 lakh
5. After tax₹16.01 lakh
6. Lost to 6% inflation−₹7.07 lakh
7. In today’s rupees₹8.94 lakh

7% a year, interest taxed every year at 31.2%, 6% inflation.

Try it

Your FD after tax and inflation

Your tax slab

No tax5%10%20%30%

FD rate a year7%

Inflation a year6%

After tax

4.82%

After inflation

−1.12%

₹10 lakh after 10 years, in today's rupees

₹8.94 lakh

₹10 lakh grows to ₹16.01 lakh, but buys only what ₹8.94 lakh buys today: it loses buying power.

Open the full calculator, with every input

What this means

• FDs still have a job. They are safe, easy to cash and right for money you may need soon. Just don’t count on them to grow your wealth at the higher slabs.
• Compare after tax. PPF at 7.1% is tax-free, so after 6% inflation it stays ahead by about 1.04% a year. Equity funds are taxed only when you sell, and long-term gains above ₹1.25 lakh a year at 12.5%.
• Inflation is an assumption. 6% is the middle of the range our tools use; change it if you expect something different.

To see an FD against a plot and an equity fund with your own figures, use the plot vs FD vs mutual fund calculator. For monthly saving, the SIP vs PPF vs RD calculator does the same for a recurring deposit.