After-Tax Return

Investments

After-tax return is the actual return you keep after paying all applicable taxes. Comparing investments on after-tax return basis gives the true picture -- an FD at 7.5% for someone in the 30% bracket is only 5.25% after tax, which barely beats inflation.

In detail

After-tax return comparison (30% tax bracket, 2024-25):nFD at 7.5%: after tax = 5.25% (interest taxed at slab)nDebt fund at 7.5%: after tax = 5.25% (now taxed at slab post-2023)nEquity MF at 12% (LTCG): after tax = approximately 11.1% (12.5% only on gains above Rs 1.25L)nSGB at 10.5% (7.5% gold + 3% maturity gain + 2.5% interest): at maturity completely tax-free = 10.5%nPPF at 7.1%: completely tax-free = 7.1% effective (EEE status)

Formula

After-tax return = Pre-tax return x (1 - Tax rate)nFor LTCG: After-tax = Pre-tax - (12.5% x gains above Rs 1.25L exemption)

Real-life example

🇮🇳 India example

Rahul in 30% bracket compares: FD at 7.5% vs PPF at 7.1%. FD after-tax: 5.25%. PPF: 7.1% (tax-free). PPF wins by 1.85 percentage points despite lower stated rate. On Rs 5L for 15 years: PPF creates Rs 6.35L, FD creates only Rs 4.96L at after-tax returns.

Frequently asked questions

Which instrument gives best after-tax return in India? ▼

Equity MF (LTCG 12.5% with Rs 1.25L exemption) historically best for 10+ years. PPF and SGB best for guaranteed/gold category. FDs worst for 30% bracket investors -- interest fully taxed.