Cumulative Interest

Tax Glossary Definition

Cumulative Interest

Cumulative interest refers to interest that is periodically added to the principal amount rather than paid out immediately, allowing it to compound over time. The total interest accrues and is usually taxable in the year it is credited, even if not withdrawn.

Example: Interest earned on a fixed deposit (FD) in cumulative mode is reinvested annually, and the accumulated interest is taxed in the year it accrues, not when withdrawn.

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