FD vs Bond: Post-Tax Comparison
Headline rates don't tell you much. This tool compares a bank FD against a listed bond on post-tax XIRR, applying slab tax on interest, 12.5% LTCG on listed-bond gains held beyond 12 months, and quarterly FD compounding. The winner is often not the one with the higher sticker rate.
Inputs
The bond
Verdict
| Bank FD | Bond | |
|---|---|---|
| Post-tax XIRR | — | — |
| Total post-tax cash | — | — |
| Total tax paid | — | — |
| Capital gains treatment | n/a | — |
Bond model: buy and hold to maturity; coupons taxed at slab on receipt (accrued interest paid at purchase netted off); redemption gain taxed as LTCG 12.5% (+cess) if listed & held >12 months, else at slab. FD model: quarterly compounding, interest taxed at slab each FY from the corpus. Coupons are not assumed reinvested, and XIRR handles the timing.
Why a discount bond punches above its yield
Suppose you're in the 30% slab. An FD at 7.2% nets you roughly 4.95% after tax, because every rupee of FD interest is taxed at your slab (plus cess) every year. Now take a listed bond priced at 96 with a 7% coupon maturing in three years. The coupons are taxed at slab, same as the FD. But the 4-point pull to par at redemption is a capital gain, taxed at 12.5% + cess because you held a listed security beyond 12 months. Slab on interest, 12.5% on gains: that split is why the composition of a bond's return matters as much as its headline YTM.
It runs the other way too. A bond bought above par hands you a built-in capital loss at maturity with fully-taxed coupons along the way, which usually lands below what its YTM suggests. High-coupon premium bonds are less tax-efficient for high-slab investors, and the comparison above will show it.
What the tool deliberately ignores
- Credit risk: a 9% A-rated NCD beating a 6.75% FD post-tax is not a like-for-like win. Compare within similar risk buckets.
- Liquidity: FDs break easily; retail bond lots may not find buyers quickly.
- Deposit insurance: DICGC covers FDs up to ₹5 lakh per bank; bonds have no equivalent.
- Senior-citizen FD premiums: add ~0.5% to the FD rate if applicable.
For the full tax mechanics (TDS thresholds, Form 121, set-off rules, the Budget 2026 SGB change), read the complete bond taxation guide.
Frequently asked questions
Why compare post-tax XIRR instead of just the interest rates?
Because taxes hit FDs and bonds differently. FD interest is taxed at slab every year. A listed bond's coupons are taxed at slab too, but any price gain to maturity is a capital gain, taxed at 12.5% if held over 12 months. A bond bought below face value can beat an FD with a higher headline rate once tax is counted. XIRR puts both on one comparable scale.
Are corporate bonds as safe as bank FDs?
No instrument-level guarantee exists for bonds. Bank FDs carry DICGC insurance up to ₹5 lakh per bank per depositor; corporate bonds carry issuer credit risk, and a AAA issuer defaulting is rare but not impossible. G-secs are sovereign risk, safer than any bank FD. Compare returns only after you're comfortable with the credit.
What about premature exit?
FDs can be broken with a small penalty (usually 0.5–1% on the rate). Listed bonds must be sold on the exchange or an OBPP, where liquidity for retail lots can be thin and you bear price risk. If you may need the money early, that flexibility is worth something. Weigh it against the yield gap.
Does this account for TDS?
TDS is a timing effect, not an extra tax. Both FD interest (above ₹50,000/year for regular citizens) and listed bond interest (above ₹10,000/year) attract 10% TDS, which adjusts against your final liability. The comparison uses your full slab rate, which is what decides the outcome.
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Educational tool, last reviewed July 2026. Results are estimates based on your inputs and standard market conventions; actual traded prices, taxes and platform charges may differ. Not investment advice; see the disclaimer.