What To Do With Tax Return?

Tax-refund accrues in your favour when the tax liability is less than the collective tax payments already made in the form of TDS (Tax Deducted at Source) . In such cases, you are liable to get a tax refund from the government for the excess tax payments made. If you are entitled to receive such a refund, you may be wondering what to do with tax return money?While you may be tempted to spend it on the latest gadget or splurge it on shopping, it is essential to use the money wisely.Here are some of the best uses.

1. Clear Your Debts: From car loan to home loan or even credit-card dues, you can use the tax-refund money for paying off a host of debts. The best part about pre-payment of loans is that the entire payment goes towards the principal, unlike EMIs, where the payment is distributed into principal and interest.
2. Buy an Insurance Policy: Delaying buying that life insurance policy ? Haven’t been able to save up for a health cover for yourself and your family? Tax-refund money can be a perfect way to buy insurance covers to safeguard the future of you and your family.
3. Invest in Tax-saving Instruments: You can also use the tax-refund of one year to invest in tax-saving instruments and save taxes in the next year. Instruments such as ELSS (Equity Linked Savings Scheme , PPF (Public Provident Fund) , NPS (National Pension Scheme) , etc., allow you to deduct up to Rs 1,50,000 from your taxable income in a financial year as per section 80C.
4. Build an Emergency Fund: If there is one thing that the recent COVID-19 pandemic has taught us, it is that emergency can strike us at any time. Consider opening a special savings account or fixed deposit account for rainy day needs, using your tax refund as the seed money.
5. Invest in Children’s Education, Self-Improvement and Potential Income: Education costs a lot of money these days and is likely to become costlier in the future. You can start an education fund for your children, invest in a course that increases your own skills, or use the refund money to buy equipment for a side-business or even for advertising your own business.

When deciding on how to use your tax refund money, look at the short-term vs long-term gratification of the same. While spending on shopping might give you temporary joy, but it may hurt your long-term goals. Choose wisely.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.