8 Ways To Use Your Income Tax Refund

Many taxpayers have started to receive income tax refunds after filing their returns (ITRs) on or before the deadline of July 31, 2022. The credit of excess tax paid is akin to a windfall gain with many treating it as a bonanza from the government. The net result is most people end up splurging their income tax refund credit on unimportant indulgences.

Your financial expert, however, would recommend you to plan these in more meaningful ways to move closer to your financial goals. It anyways is part of your hard-earned money and ought to be used wisely.

Here are a few smarter ways to spend or invest the money received as income tax refund:

Buy life or health insurance

Planning carefully for uncertain events which may put a significant financial burden on your family should be the foremost goal for people, said Archit Gupta, Founder and CEO, Clear, an online platform for financial services.

“If you don’t have life and health insurance cover for yourself and your family members, consider it one of the first necessities and purchase a good insurance plan. It will give a tax benefit also,” Gupta told CNBC-TV18.com.

Pay off debt

The trick is to prepay the entire amount early in the tenure of the loan so that your total interest on the loan reduces, which, in turn, means you spend less time in debt. However, if you have some excess cash, you can prepay and get the monkey off your back even later in the loan tenure, Gupta said.

Pay taxes

Once you receive a tax refund, you should calculate tax liability for that quarter of the period of a year and see if there is still any tax payable. For example, this is the second quarter going on. You should see what would be estimated tax liability for both these quarters of the financial year and check out whether you have paid due taxes. If there is any shortfall, you should use this refund receipt for this payment, said Sujit Bangar, Founder, Taxbuddy.com

Donate to charity

If your finances are in good condition and you’re feeling generous, you could also donate your tax refund to a charity and deduct the charitable donation from your taxes.

Invest in equity or equity-oriented mutual funds for the long term

Invest in retirement schemes like the National Pension Scheme (NPS)

Beef up your emergency fund

Register for a course to enhance your job skills

Various online skill courses allow you to challenge yourself and take on new learning experiences. This can benefit your personal and professional lives. Over time, a salary increase might be worth much more than the value of your refund today, Gupta said.