Who wouldn’t like a steady source of income? A steady income allows us the freedom to plan our expenses and life-style forward. It is for this reason that debt instruments like fixed deposits & bonds are so popular.
But, there is a catch with debt. What we get is fixed, but, what we spend need not be fixed. The money we require is bound to increase over time due to the phenomena of inflation. So be careful and invest your money wisely to beat inflation.
There is another very important draw-back of debt and that is the taxation. As per Indian IT Laws interest income earned on fixed deposits/bonds is treated as ‘income from other sources’ and will be taxed at the highest slab of the investor. So if you are earning more than 10 lacs in an annum, then 30% of whatever interest you get is eaten away by tax. Ouch! That hurts!
So what can be done about this?