Short answer. Since 1 April 2023, gains on debt funds are taxed at your slab rate, like FD interest. The difference is timing: FD interest is taxed every year, a debt fund's gain only when you sell. On ₹10 lakh for five years at the same 7.19% return and a 30% slab, that deferral is worth about ₹12,500.
The calculator
Tax & rulesPut in the same money, for the same years, both ways. The maths runs on this page and nothing is sent anywhere. Load an example and change one thing at a time.
Our calculation, from the rules listed below. The FD's interest is taxed every year as it builds up, so we take that tax out each year. A debt fund bought on or after 1 April 2023 is taxed at your slab rate too, but only once, on the whole gain, when you sell. Your bank's interest certificate and your fund statement are the final word.
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Same rate, different bill
The methodSince 1 April 2023 a debt fund doesn't get a lower tax rate than an FD. Both are taxed at your slab. So the old pitch, "debt funds are more tax-efficient", is mostly gone.
What's left is when you pay. The FD's interest is taxed every year, even if you don't touch it. That tax money leaves your FD and stops earning. The fund's gain is taxed once, when you sell. Until then the rupees you'll owe as tax keep earning for you.
That gap is small in one year and grows with time. The fund also has to actually earn what the FD pays. If it earns less, the head start can vanish. The "break-even return" line tells you how much less it can earn before the FD wins.
Worked examples
Tax year 2026-27| ₹10 lakh for 5 years, 30% slab | FD at 7%, quarterly | Debt fund |
|---|---|---|
| Fund earns 7.19%, about the FD's yearly yield | ₹12,72,876 | ₹12,85,553 |
| Fund earns 7.00% | ₹12,72,876 | ₹12,76,956 |
| Fund earns 7.00%, sold in a 5% slab year | ₹12,72,876 | ₹13,81,619 |
| Fund earns 7.19%, no tax to pay at all | ₹14,14,778 | ₹14,15,049 |
At the same return and the same slab, waiting to pay tax is worth about ₹12,500 on ₹10 lakh over five years. Real, but not life-changing. The big swing is the slab you sell in: the same fund, sold in a low-income year, ends ₹1 lakh ahead.
Illustrative, our calculation, including the 4% cess. No bank or fund named.
Get the sheet
FreeFD vs debt fund sheet
Questions people ask
Tax year 2026-27Is a debt fund more tax-efficient than an FD after April 2023?
Not on the rate. Units of debt funds bought on or after 1 April 2023 give short-term gains taxed at your slab, however long you hold them. What's left is deferral: you pay tax once, when you sell, instead of every year. Source: Income-tax Act, 2025, section 76.
Is FD interest taxed every year even if I don't withdraw it?
Generally yes. Interest on cumulative deposits is taxed as it accrues each year, not when the FD matures, if you follow the accrual basis (cash basis is allowed if you follow it consistently). Banks also deduct TDS on it every year. Source: CBDT Circular No. 371.
Which debt funds count as 'specified mutual funds'?
Funds that invest more than 65% of their money in debt and money-market instruments, or 65% or more in units of such funds. Hybrid funds with less debt than that are taxed differently. Source: Income-tax Act, 2025, section 76(5)(b).
When does a debt fund beat an FD after tax?
When its return clears the break-even the calculator shows, usually a little below the FD's yield, and more so the longer you hold. Selling in a year when your slab is lower, like after you retire, widens the gap a lot.
Does TDS on FD interest mean I pay more tax?
No. TDS is an advance on your income tax, not an extra tax. Banks deduct 10% once interest from one bank crosses ₹50,000 in a year (₹1 lakh for senior citizens), and you settle the rest in your return. Source: Income-tax Act, 2025, section 393.
The rules this uses
Last verified 21 Oct 2026Every rule in the calculator comes from these official pages. We re-check them every quarter and on Budget day, and log any change on our corrections page.
| Rule | Official source |
|---|
Known limits
Read these first- A big gain sold in one year can push part of it into a higher slab. The tool uses the one slab rate you pick for that year.
- It doesn't add surcharge, which starts above ₹50 lakh of income.
- Debt funds bought before 1 April 2023 follow older rules. This tool is for new money.
- No exit load, no TDS timing. TDS on FD interest is an advance on the same tax, not extra tax.
- A debt fund's return isn't fixed and can fall. An FD's is fixed, and bank deposits are insured up to ₹5 lakh per bank by DICGC.
Tested against 10 hand-worked cases (v1.0, 21 October 2026), matched to the rupee.
Education only. This newsletter is for education only. It is not investment, tax or legal advice and does not recommend any security or product. Do your own research or consult a registered professional.