Priyanka Personal Finance
Smart Money · Simple Words · India
Smart Money · Simple Words · India
Your FD says 7%, but what do you really earn? After tax and inflation, the true (real) return is often far lower — sometimes negative. Find your real return and what your money is really worth.
Estimate only · Not financial advice · Assumes constant return, inflation and tax · Real taxation depends on the instrument (slab, LTCG, indexation) — treat this as a simple guide
The nominal return is the headline number your bank or fund quotes — say 7% on an FD. The real return is what is left after inflation eats into it, and after tax takes its cut. If your FD earns 7%, you pay 30% tax (leaving 4.9%), and inflation is 6%, your real return is roughly −1%. Your rupee balance grows, but your actual buying power shrinks.
First, tax reduces your return: post-tax return = nominal × (1 − tax%). Then inflation is removed using the exact Fisher formula:
real return = ((1 + post-tax return) ÷ (1 + inflation)) − 1
A quick approximation is simply post-tax return − inflation, but the formula above is exact. This calculator uses the exact version and compounds it over your chosen time period to show the inflation-adjusted value of your money.
A real return is your investment return after adjusting for inflation (and often tax). If your FD earns 7% but inflation is 6%, your real return is only about 1% — that is the true growth in your purchasing power.
The exact formula is: real return = ((1 + post-tax return) / (1 + inflation)) − 1. For example, a 7% return taxed at 30% gives a 4.9% post-tax return; at 6% inflation the real return is (1.049 / 1.06) − 1 ≈ −1%, i.e. slightly negative.
Yes. This is common with fully-taxable fixed deposits for people in higher tax brackets. If inflation and tax together are higher than your nominal return, your money loses purchasing power over time even though the rupee balance grows.
Inflation quietly eats your returns. A 6% inflation rate halves the value of money in about 12 years. To actually build wealth, your post-tax return must beat inflation — that gap is your real return, and it is what truly grows your money.