After submitting income tax returns (ITRs) on or before the due date of July 31, 2022, a large number of taxpayers have begun to get income tax refunds. Many people view the credit for more taxes paid as a windfall profit from the government. The final effect is that most people spend their income tax refund credit on unnecessary extravagances.
If you’re expecting a refund on your tax return or currently have that money sitting in your bank account, here are a few wise ways to maximise its value:
1. Pay off debt
Revolving credit card debt, payday loans, and other forms of debt can be crushing when they generate interest on a monthly basis. The key is to make a full prepayment at the beginning of the loan's term to minimise your overall interest rate and shorten the period of time you are 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.
2. Purchase life and health insurance
According to Archit Gupta, founder and CEO of Clear, an online platform for financial services, people should prioritise properly planning for unforeseen situations that could place a substantial financial strain on their families. Buying life and health insurance is a necessity for an individual to secure their life. It will also give a lot of tax benefits.
3. Create an emergency fund
One of the most crucial resources for developing financial stability is an emergency fund. This emergency fund gives you the much-needed buffer you need to weather a loss of income, unforeseen medical expenses, or a variety of other pressing financial needs that call for immediate access to cash.
Your emergency fund should have enough money in it to last three to six months' worth of minimal living expenditures.
4. Invest in retirement schemes
Investments in retirement benefit plans like NPS can enable you to take advantage of an additional Section 80C deduction of up to Rs 50,000 for the same investment.
5. Finance your studies or other professional development
Your tax refund may provide you with the training you need to advance in your job through educational opportunities, professional growth, or other types of training.When the time comes to file your taxes for the upcoming year, some of these educational expenses can also qualify for tax deductions, which might lessen your overall tax burden.
