Regressive Income Tax Table for Fixed Income: How It Works and What You Pay
Income Tax on fixed income investments follows a regressive table: the longer you keep your money invested, the lower the rate.
Income Tax on fixed income investments follows a regressive table: the longer you keep your money invested, the lower the rate. It starts at 22.5% for redemptions made within 180 days and drops to 15% for investments held for more than 720 days. Understanding this logic is essential for comparing investments and deciding when to redeem.
In this guide, you will learn how the table works, how IOF fits into the calculation, which investments are tax-exempt, and how to calculate the tax in practice.
How the Regressive Income Tax Table Works
In fixed income, IR is charged only on the earnings — the gain from the investment — and never on the principal amount you invested. In addition, the withholding happens at source at the time of redemption: you receive the net amount, with no need to file anything manually.
The rate depends on the investment term, counted from the purchase date to the redemption date:
| Investment term | IR rate on earnings |
|---|---|
| Up to 180 days | 22.5% |
| 181 to 360 days | 20% |
| 361 to 720 days | 17.5% |
| Over 720 days | 15% |
This is the regressive table, as set out in Brazilian Income Tax legislation (Law No. 12,350/2010, which reinstated the rates from 22.5% to 15%, and regulated under the Income Tax Regulations — RIR/2018, Articles 745 et seq.). It exists to encourage longer holding periods: those who redeem early pay more tax on their gains; those who keep the investment for more than two years pay the lowest rate on the table.
Practical Example: How Much Income Tax Do You Pay?
Suppose you invest R$ 10,000 in a CDB (Bank Certificate of Deposit) that yields 10% per year, with explicit assumptions: constant rate, no grace period, and a single redemption.
Scenario 1 — Redemption in 6 months (180 days):
- Approximate gross earnings: R$ 500
- IR at 22.5%: R$ 112.50
- Net earnings: R$ 387.50
Scenario 2 — Redemption in 3 years (over 720 days):
- Approximate gross earnings (compound interest): approximately R$ 3,310
- IR at 15%: approximately R$ 497
- Net earnings: approximately R$ 2,814
Notice that, beyond earning more by staying invested longer, the rate drops from 22.5% to 15%. This is the combined effect of the regressive table. Note: these are simulations with simplified assumptions, not a return forecast.
IOF: The Tax on Redemptions Before 30 Days
In addition to IR, there is the IOF (Tax on Financial Operations), which applies only to redemptions made in the first 30 days of the investment. The rate is regressive on a daily basis: it starts at 96% of earnings on the first day and decreases to zero on the 30th day (rule set out in Decree No. 6,306/2007, Article 32 and Annex).
In practice:
- Redeemed on day 1? Nearly all the earnings go to IOF.
- Redeemed on day 15? Half of the earnings are withheld.
- Redeemed on day 30 or later? No IOF applies — only the IR per the regressive table remains.
IOF also applies to the earnings, not the principal. This is why redeeming a fixed income investment just a few days after investing usually means little to no net earnings.
Tax-Exempt Investments for Individuals
Not every fixed income investment is subject to the regressive table. The following are exempt from IR for individuals:
- LCI (Real Estate Credit Note)
- LCA (Agribusiness Credit Note)
- CRI and CRA (real estate and agribusiness receivables certificates)
- Incentivized Debentures (infrastructure, issued under Law 12,431/2011)
- Savings account
This means that, with these products, the full earnings come to you with no IR withholding at source. In exchange, they usually have minimum terms, grace periods, or lower liquidity than a CDB with daily liquidity. The correct comparison is always between after-tax net rates, not gross rates.
IR vs. IOF: What Is the Difference?
| Feature | IR | IOF |
|---|---|---|
| When it applies | Every redemption with earnings | Only redemptions before 30 days |
| Rate | 22.5% to 15% (regressive by term) | 96% to 0% (regressive by day) |
| Tax base | Earnings | Earnings |
| How it is charged | Withheld at source upon redemption | Withheld at source upon redemption |
Both taxes are automatically withheld at source, so you do not need to take any action at the time of redemption — but you do need to factor them in when comparing returns and planning your holding periods.
Common Mistakes with Fixed Income Taxation
- Comparing gross rates without considering IR. A CDB at 110% of CDI with 15% IR may yield more than an LCA at 92% of CDI that is tax-exempt — or it may not. The calculation depends on the term and the rates offered.
- Redeeming before 30 days without knowing about IOF. Earnings can be practically wiped out.
- Forgetting that IR applies only to the gain. Many people think the tax applies to the entire redeemed amount; in reality, it applies only to the earnings.
- Ignoring the total investment term. With some products, each deposit has its own holding-period clock for the regressive table.
- Assuming the rules never change. Tax rules can be amended; confirm the current conditions at the time of redemption.
When Each Term Makes Sense
- Emergency fund and short terms: prioritize liquidity, but know that redemptions before 30 days are subject to IOF and redemptions before 180 days pay 22.5% IR. If you are unsure about the ideal size of this reserve, see how much to save in an emergency fund.
- Medium terms (1 to 2 years): the rate drops to 20% and 17.5%. Products with defined maturity dates may fit well for intermediate goals — it is worth understanding how to choose between CDB, Treasury, and savings.
- Long terms (over 2 years): minimum rate of 15%, or zero for exempt products. This is the typical scenario for someone building a long-term portfolio, such as someone learning how to build an investment portfolio.
FAQ
Does fixed income IR apply to the total amount I redeem? No. The tax applies only to the earnings (the gain), never to the principal invested, and it is withheld at source upon redemption.
I paid both IOF and IR on the same redemption. Is that correct? Yes, if the redemption occurred before 30 days. In that case, IOF applies first to the earnings and IR applies to the earnings net of IOF.
Does the savings account really pay no IR? Correct: the savings account is exempt from IR for individuals, along with LCI, LCA, CRI, CRA, and incentivized debentures.
Does the regressive table apply to all fixed income investments? It applies to taxable ones, such as CDB, Treasury Direct, taxable CRI/CRA, and fixed income funds. In the case of funds, there are specific rules, such as come-cotas, the twice-yearly advance collection of IR. The exempt products listed above are outside this rule.
If I redeem exactly on day 720, what rate do I pay? Over 720 days the rate is 15%; from 361 to 720 days it is 17.5%. The exact cutoff depends on counting calendar days from the investment date — if in doubt, confirm with your financial institution before redeeming.
Conclusion
The regressive IR table for fixed income is simple in essence: 22.5% up to 180 days, 20% from 181 to 360, 17.5% from 361 to 720, and 15% over 720 days, always applied to earnings and withheld at source. Add to that the regressive IOF in the first 30 days and the existence of tax-exempt products, and you have the three pillars for comparing investments realistically.
Before making any decision, always compare the after-tax net return for your actual investment term — and remember that tax rules can change, so confirm the current conditions at the time of redemption.
This content is for educational purposes only and does not constitute an individual investment recommendation. Tax rules may change; confirm the current conditions at the time of redemption.
