Contents (18 chapters)
13. Fixed Income, Small Savings, Gold and Crypto
The safe end of the balance sheet, plus the two asset classes that generate the most argument.
The exempt instruments — EPF, VPF, PPF, SSY — dominate on post-tax return and are dominated on liquidity. At a 30% marginal rate plus cess, a 7.0% fixed deposit returns 4.8% after tax while PPF's 7.1% is the whole 7.1%, and the deposit is the one you can break tomorrow. That trade is the design, not an accident, and it is why the emergency fund does not live in any of them.
The sections below are the inventory behind that claim: deposits, small savings, bonds, gold, and the separate regime that applies to crypto. §13.6 states the comparison as a table.
13.1 Bank deposits
Savings account
- Interest ranges roughly 2.5% to 7.5% p.a., varying by bank and by balance slab. Public sector banks cluster around 2.7%; small finance banks pay the highest rates, often on balances above a threshold.
- Interest is credited quarterly and is taxable at your slab rate.
- Section 153 (formerly 80TTA) allows a deduction of up to ₹10,000 on savings account interest, old regime only. For those aged 60+, Section 153 (formerly 80TTB) allows ₹50,000 covering savings and deposit interest.
- Sweep-in / flexi accounts automatically convert balances above a threshold into short fixed deposits and break them in units when you spend. This gives you FD rates with savings-account liquidity, and is the simplest place for an emergency fund.
Fixed deposits
| Feature | Detail |
|---|---|
| Tenure | 7 days to 10 years |
| Rates, August 2026 | Roughly 6.25%–8.60% depending on bank and tenure. Small finance banks pay the highest; large public and private banks pay less |
| Senior citizens | Typically 0.25%–0.75% above the standard rate |
| Compounding | Usually quarterly. A 7.00% nominal rate compounded quarterly yields 7.19% effective |
| Cumulative vs non-cumulative | Cumulative reinvests interest and pays at maturity; non-cumulative pays out monthly or quarterly |
| Premature withdrawal | Permitted with a penalty, typically 0.5%–1.0% off the applicable rate |
| Loan against FD | Usually up to 90% of the deposit, at roughly 1%–2% above the FD rate. Often cheaper than a personal loan and avoids breaking the deposit |
Deposit insurance: DICGC
Deposits at each bank are insured by the Deposit Insurance and Credit Guarantee Corporation up to ₹5,00,000 per depositor per bank, covering principal plus interest combined, across all your accounts at that bank (savings, current, FD, RD).
The cover is per bank, not per account. ₹15 lakh spread across three accounts at one bank is insured to ₹5 lakh in total. The same ₹15 lakh across three different banks is fully insured.
This matters most for small finance banks and co-operative banks, which pay the highest advertised rates precisely because they carry more risk.
Tax on deposit interest
| Item | Detail |
|---|---|
| Rate | Your slab rate. There is no concessional treatment |
| TDS threshold: banks | ₹50,000 per bank per year for those under 60; ₹1,00,000 for senior citizens |
| TDS threshold: NBFCs and companies | ₹10,000 |
| TDS rate | 10% with PAN linked; 20% without |
| Section | 392 (formerly 194A) |
| If income is below the taxable limit | Submit Form 121 (which replaced Forms 15G and 15H from 1 April 2026) |
The most common FD mistake: assuming that no TDS means no tax. A higher TDS threshold does not make interest tax-free. Interest accrues and is taxable every year on an accrual basis, even on a cumulative FD that pays nothing until maturity. Declare it annually; check Form 168 (formerly 26AS) and your Annual Information Statement against your own records.
Tax-saving FD
- 5-year lock-in, cannot be broken under any circumstances, no loan permitted against it.
- Qualifies under Section 123 (formerly 80C), old regime only.
- The interest remains fully taxable. So it is a taxable-return instrument bought for a deduction, which under the new regime it no longer provides.
Recurring deposits
A fixed monthly deposit for a fixed tenure at a fixed rate. Rates match FDs of the same tenure. Taxed identically. Useful for a defined short-term goal with a known date.
13.2 Small savings schemes
Government-backed, administered through post offices and designated banks. Rates are reset quarterly by the Ministry of Finance.
Rates: July–September 2026 quarter
| Scheme | Rate | Tenure |
|---|---|---|
| PPF: Public Provident Fund | 7.1% | 15 years |
| SSY: Sukanya Samriddhi Yojana | 8.2% | Until the girl turns 21 |
| NSC: National Savings Certificate | 7.7% | 5 years |
Rates were held unchanged for the July–September 2026 quarter, the ninth consecutive quarter without a change. The rest of the family — SCSS, KVP, POMIS and the one- to five-year post office time deposits — is not aimed at a salaried engineer accumulating for the long term; their rates for the same quarter are in §17.9.
PPF in detail
The most relevant of these to a salaried engineer.
| Feature | Detail |
|---|---|
| Rate | 7.1%, reset quarterly, compounded annually |
| Minimum | ₹500 per year |
| Maximum | ₹1,50,000 per year, across all PPF accounts including a minor's account you operate |
| Tenure | 15 years, extendable indefinitely in 5-year blocks, with or without further contributions |
| Tax treatment | EEE: contribution deductible under Section 123 (old regime), interest exempt, maturity exempt. Interest and maturity remain exempt under both regimes |
| Loan | From year 3 to year 6, up to 25% of the balance at the end of the 2nd preceding year |
| Partial withdrawal | From year 7, once a year, up to 50% of the balance at the end of the 4th preceding year |
| Premature closure | From year 5, only for specified grounds (serious illness, higher education, change of residency status), with a 1% interest penalty |
| Protection from attachment | A PPF balance cannot be attached under a court decree for debt or liability, a genuinely unusual protection |
| Interest calculation | On the lowest balance between the 5th and last day of each month. Depositing by the 5th of the month earns that month's interest; depositing on the 6th does not |
Compounding at 7.1% for 15 years produces 2.80×. ₹1.5 lakh contributed annually for 15 years (₹22.5 lakh in) matures at roughly ₹40.7 lakh, entirely tax-free.
The regime interaction: under the new regime, PPF contributions are not deductible, but the interest and maturity remain exempt. That makes it a 7.1% tax-free return, equivalent to about 10.4% pre-tax at a 30%+cess marginal rate. It stays competitive with taxable fixed income even without the deduction.
Others, briefly
- NSC: 5-year tenure, Section 123 eligible. Interest accrues annually and is taxable, but the reinvested interest of years 1–4 itself qualifies under Section 123. Interest of year 5 does not.
- SSY: for a girl child below 10, one account per child, maximum two children. ₹250 to ₹1.5 lakh a year for 15 years; matures when she turns 21. EEE, and at 8.2% the highest-rate EEE instrument currently available.
- SCSS: 60+ (or 55+ on superannuation), maximum ₹30 lakh, quarterly interest payout, fully taxable. Relevant when planning for parents.
13.3 Bonds
A bond pays a fixed coupon on a fixed schedule and returns its face value at maturity. What separates one from another is the issuer and the route in.
Sovereign. Government securities (G-Secs), State Development Loans (SDLs) and Treasury bills carry no credit risk. All three can be bought directly through RBI Retail Direct with no intermediary, or held through gilt mutual funds. T-bills are issued at a discount and mature in 91, 182 or 364 days; they are what liquid funds largely hold. SDLs yield slightly more than central G-Secs.
Corporate. Corporate bonds are bought on the exchanges, through SEBI-regulated online bond platforms, or in bulk through corporate bond funds, and credit risk varies enormously with rating. Tax-free bonds are a closed set of legacy PSU issues whose interest is exempt: secondary market only, priced at a premium that reflects the exemption, and no new issuance.
Bond ETFs and target-maturity funds hold to a defined maturity date, so they behave like a single bond with fund-level diversification. Bought on an exchange or from the AMC.
Taxation: interest on bonds is taxed at your slab rate. Capital gains on listed bonds held over 12 months are long-term. Debt mutual funds bought on or after 1 April 2023 are taxed at slab rate irrespective of holding period.
Interest rate risk: when rates rise, existing bond prices fall, and longer-duration bonds fall further. A gilt fund is credit-risk-free but not price-risk-free. With the RBI repo rate at 5.25% as of the August 2026 policy (following a cut from 5.50% in December 2025), duration positioning carries real consequences in either direction.
13.4 Gold
Sovereign Gold Bonds: discontinued
No new SGB tranche has been issued since Series IV of 2023-24 in February 2024, and the scheme has been confirmed as discontinued for fresh issues. No issuance calendar has been announced.
Existing SGBs continue to trade on the exchanges and continue to pay their 2.5% annual coupon until redemption.
A critical tax distinction from 1 April 2026: the capital gains exemption on redemption at maturity applies only to original subscribers who hold to maturity. Someone who bought SGBs on the secondary market does not get the exemption, even if they hold to redemption; those gains are taxed as capital gains at 12.5% for holdings over 12 months.
The remaining routes
| Route | Structure | Costs | Taxation |
|---|---|---|---|
| Gold ETF | Exchange-traded, backed by physical gold | TER ~0.5%–1.0%; demat account required; brokerage | LTCG at 12.5% after 12 months |
| Gold mutual fund / fund of funds | Invests in a gold ETF | TER of the FoF plus the underlying ETF; no demat needed; SIP possible | Longer holding period than an ETF for long-term treatment; confirm the current rule for the specific scheme |
| Digital gold | Bought through apps, backed by vaulted gold | 3% GST on purchase; spread between buy and sell price; not SEBI-regulated | Treated like physical gold: 12.5% after 24 months |
| Physical gold and jewellery | Coins, bars, jewellery | 3% GST; making charges of 8%–25% on jewellery, largely unrecoverable; storage and insurance | 12.5% after 24 months |
On jewellery specifically: making charges are a permanent loss of principal at the point of purchase. Gold bought as jewellery is a consumption good with a resale value, not an investment in gold.
Returns from gold come from price appreciation only. There is no yield, no dividend and no interest; the discontinued SGB's 2.5% coupon was the one exception. This is the structural difference between gold and every other asset in this document.
13.5 Crypto and Virtual Digital Assets
Taxed under a separate, deliberately unfavourable regime introduced in 2022 and carried into the Income-tax Act, 2025.
| Rule | Detail |
|---|---|
| Rate | 30% flat, plus 4% cess, regardless of holding period and regardless of your slab |
| Deductions | Only the cost of acquisition. No deduction for transaction fees, exchange charges, mining costs, electricity or infrastructure |
| Loss set-off | Losses cannot be set off against any other income, including gains on other VDAs. They cannot be carried forward |
| TDS | 1% under Section 194S on the transfer of a VDA, above ₹50,000 a year for specified persons and ₹10,000 for others |
| Reporting | Schedule VDA in the return; foreign-held VDAs also require Schedule FA disclosure regardless of value |
| Gifts | A VDA received as a gift is taxable in the recipient's hands |
Taxable events include selling for rupees, exchanging one VDA for another, and paying for goods or services with a VDA. Crypto-to-crypto trades are taxable at each step.
The no-set-off rule is the harshest feature and is worth stating precisely. If you make a ₹5 lakh gain on one token and a ₹5 lakh loss on another in the same year, you pay 30% on the ₹5 lakh gain and receive nothing for the loss. Your economic position is zero; your tax liability is ₹1.5 lakh plus cess.
Regulatory status: VDAs are not legal tender in India and are not regulated by SEBI or the RBI. Exchanges are registered with the FIU-IND for anti-money-laundering purposes. There is no investor protection mechanism.
13.6 Comparing the safe assets
Post-tax comparison at a 30% marginal rate plus 4% cess (effective 31.2%), FY 2026-27:
| Instrument | Pre-tax return | Tax treatment | Post-tax return | Liquidity |
|---|---|---|---|---|
| Savings account | ~3.0% | Slab | ~2.1% | Instant |
| Liquid fund | ~6.5% | Slab | ~4.5% | T+1 |
| Bank FD (1 yr) | ~7.0% | Slab | ~4.8% | Penalty on break |
| EPF / VPF | 8.25% | Exempt after 5 years | 8.25% | Very low |
| PPF | 7.1% | Exempt | 7.1% | 15-year lock-in |
| SSY | 8.2% | Exempt | 8.2% | Until age 21 |
| NSC | 7.7% | Slab | ~5.3% | 5-year lock-in |
| Gilt fund | Variable | Slab | Variable | T+1 to T+2 |
Every instrument here that beats a deposit on post-tax return is locked. NSC included: 7.7% taxable is 5.3% after tax against the deposit's 4.8%, and it costs five years to collect the difference.
Note also that the debt mutual fund tax change of April 2023 removed the advantage debt funds previously held over fixed deposits. Both are now taxed at slab rate. Debt funds retain advantages in liquidity, in the deferral of tax until redemption, and in the ability to choose duration; FDs retain advantages in certainty and DICGC cover.
13.7 Checklist
- Keep the emergency fund in a sweep-in account or liquid fund, not in a locked instrument
- Check whether any single bank holds more than ₹5 lakh of your deposits; DICGC cover is per bank
- Declare FD interest annually on accrual, even where no TDS was deducted and even on cumulative deposits
- Reconcile Form 168 (formerly 26AS) and your Annual Information Statement against your own interest records
- If contributing to PPF, deposit by the 5th of the month to earn that month's interest
- Note that PPF interest and maturity remain exempt in the new regime, even though the contribution is not deductible
- If you hold SGBs bought on the secondary market, note that the maturity exemption does not apply to you
- If you transact in VDAs, maintain complete records: losses cannot offset gains, so every transaction must be tracked individually