If you are in the Income Tax ka top bracket of 30% Tax rate, do you know that your average Fixed Deposit is actually de-growing your money???
Does this sound like a shock to you???
See, suppose you invest in a Fixed deposit that gives you 9.50% interest rate per year and you are in the 30% Income Tax Slab you actually approx 33% as tax(with surcharge & education cess) on the interest which is added to your yearly income.
If you invest in your Bank FD of 9.5% please simply understand that 33% of that interest rate will be income tax that you will have to pay.
So when you deduct 33% from 9.5% your return amounts to 6.36%. Effectively that is what you get in hand.
Do you know what is current inflation?
Well the Government of India has announced Cost Inflation Index(CII) for the year 2014-2015 at 1024, to simplify it at 10.24. Which means last year the prices of things went up by 10.24%
In layman terms, if you bought 1 kg daal in Rs. 100/- today, you will need Rs. 110.24/- to buy the same daal next year.
Average CII for the last 5 years is 862.
Bottom line is if you did not make 8.62% post tax deductions you are actually de-growing your money.
Okay so now do I have your attention???
If yes, please raise your hands and then in the next post we look at how to make more than the 8.62%, the one good news I can share is the Government will give you indexation benefits and make you pay no tax on any income you earn below the CII if you invest in the instruments that the Government wants you to invest in!! 😀 😀 😀