It is important that one has to plan well in life and for that one has to invest properly to get the maximum real return. Doing this action one has to consider the impact of taxes and inflation which eats into your savings to arrive at real rate of returns.
The formula to be used for finding the Real Rate of Return is as appended below:
Real Rate of Return= {(1+ rate of interest)/(1+inflation rate)-1} *100
Example:-if inflation is 6% and rate of return is 10%, the real rate of return equals:-
{(1.10/1.06)-1}*100=3.77%
Tax Implications on Real rate of Return
Now one has to also take into account the tax liability like say savings rate is 6% and than effective returns will be also taxed subject to minimum waiver on interest component. For e.g. you have Rs 2 Lakh in savings and you get 6% rate of interest. This translates in Rs 12000 as annual interest and we know that Rs 10000 is the interest component which is exempt and in such scenario; one has to add balance Rs 2000 to the total income receipt and pay the tax as per tax slab. As of now you get maximum savings rate from Yes bank.
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