Tax-Equivalent Yield Calculator
Tax-exempt investments (such as municipal bonds or tax-free infrastructure bonds) offer tax-free interest. Use this calculator to determine the equivalent gross yield a taxable asset must generate to match it.
Formula & Methodology
Tax Equivalent Yield = Tax Exempt Yield / (1 - Marginal Tax Rate)Tax-Exempt Yield (%)Nominal yield on tax-free bond.
Marginal Tax Rate (%)Highest income tax bracket rate.
Practical Worked Example
An investor in the 30% tax bracket is considering a 6.5% tax-free infrastructure bond vs a bank fixed deposit.
Interpretation & Industry Benchmarks
The higher your tax bracket, the more valuable tax-free investment yields become.
Tax-free bond provides superior after-tax return.
Industry Nuance: In India, Section 10(15)(iv)(h) tax-free bonds issued by NHAI, PFC, and REC are popular among high-net-worth individuals in the 30%+ surcharge tax slabs.
Analytical Limitations
- Does not include applicable health and education cess or surcharges unless entered into the marginal tax rate.
Frequently Asked Questions
What is Tax Equivalent Yield?
It is the pre-tax yield a taxable investment would have to provide for the after-tax return to equal the tax-exempt bond yield.