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# How much does your FD really earn after tax? FD vs arbitrage fund
- URL: https://bayfol.io/fd-return-after-tax/
- Published: 2026-11-12T03:30:00.000Z
- Updated: 2026-11-12T15:28:35.000Z
- Description: In the 30% slab, a 7% FD keeps about 4.82% after tax and cess. How an arbitrage fund is taxed differently.
- Author: BayFolio LLP
- Tags: Mutual Fund Basics, Tax, #video

A 7% FD sounds simple. But you do not keep 7%.

## FD interest is taxed every year, at your slab

FD interest is added to your income. It is taxed at your slab rate, every year, even if you do not withdraw it.

In the 30% slab, add the 4% cess and the tax is **31.2%**:

|                   | Rate            |
| ----------------- | --------------- |
| FD interest       | 7.00%           |
| Tax at 31.2%      | −2.18%          |
| **What you keep** | **about 4.82%** |

## An arbitrage fund is taxed differently

An arbitrage fund carries similar low risk. It is taxed like equity, and only when you sell. Never at your slab.

- **Sold within 12 months:** 20% on the gain.
- **Held over 12 months:** 12.5% on gains above ₹1.25 lakh a year. That ₹1.25 lakh is one limit shared across all your equity gains in the year.
- Cess applies on top.

## Side by side

|            | Fixed deposit                                                               | Arbitrage fund                                |
| ---------- | --------------------------------------------------------------------------- | --------------------------------------------- |
| Tax rate   | Your slab (up to 30%)                                                       | 20% or 12.5% (equity rules)                   |
| When taxed | Every year                                                                  | Only when you sell                            |
| TDS        | 10% once bank interest crosses ₹50,000 a year (₹1 lakh for senior citizens) | No TDS on redemption for resident individuals |
| Return     | Fixed                                                                       | Moves with market conditions                  |

TDS is a prepayment of tax, not the final tax. Your tax return settles the total.

## The honest part

The FD can still be the right choice:

- When you need a **guaranteed** return and capital you cannot afford to lose.
- When you are in a **low tax slab**. Then the gap shrinks a lot.

And arbitrage returns are **not fixed**. They change with market conditions.

## Questions people ask

#### How much does a 7% FD earn after tax in the 30% slab?

About 4.82%. FD interest is taxed at your slab rate. At 30% plus the 4% cess, the tax is 31.2%, so a 7% FD keeps about 4.82%.

#### How are arbitrage funds taxed?

As equity-oriented funds. Units held 12 months or less: 20% on the gain. Units held longer: 12.5% on gains above ₹1.25 lakh a year. Plus cess. Tax applies only when you sell.

#### Is there TDS on mutual fund redemption for residents?

No. For resident individuals, there is no TDS when you redeem mutual fund units. Bank FD interest has 10% TDS once it crosses ₹50,000 in a year, or ₹1 lakh for senior citizens.

#### When is an FD better than an arbitrage fund?

When you need a guaranteed return, or when your tax slab is low. In a low slab, the FD's tax disadvantage is small.

## Know what you actually keep

Compare returns after tax, not before. The headline rate is not what reaches your pocket.

Illustration for a resident individual in the 30% slab (new regime: income above ₹24 lakh), tax year 2026-27; 4% cess; no surcharge assumed (applies above ₹50 lakh income). Arbitrage funds are equity-oriented: gains on units held 12 months or less taxed at 20%; over 12 months, 12.5% on gains above ₹1.25 lakh a year (one limit shared across all listed equity gains); plus cess. Returns are not guaranteed.

Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance does not guarantee future returns. BayFolio LLP · AMFI-registered Mutual Fund Distributor · ARN-363035.