Can you avoid paying tax? Unless you’ve been living under a rock for the last few decades, then you’d know that the answer is a definitive No.
Unfortunately, taxes are inescapable.
However, you can indeed reduce the impact of taxes by filing an ITR (Income Tax Return) every year. Even if you have invested the money or have paid big amount against insurance, travel or loans, it is time to strike a note at the year to flesh out the deductions and thereby reduce the tax burden on you.
Do you hear the Imperial March in the back of your mind while thinking of tax season?
But, fast forward — past the commotion of compiling your paperwork, having your nose to the grindstone to keep your heart beat lower when you check that things are in order thrice — to the point of time when you, once in a year, receive reprieve in the form of income tax refund from the government.
In the past years, a tremendous number of income tax filers have received a tax refund merely by filing an Income Tax Return.
Now that you’ve got a lump of cash, what should you do with it? That’s what we aim to find out in this article – now take a look at the 5 ways you can spend your income tax refund!
Faster is always better:
It is always suggested to get the IT refund directly transferred into your bank account. While visiting your tax preparer; make sure that you get your banking details and information like your bank IFSC code (you can use this handy tool to find your IFSC bank code), your bank account number etc. It is better to have your refund transferred directly as it is easy, quick and safer process than to receive a cheque.
Make it stay fresh:
In order to make your refund last, deposit it in a savings account, then arrange monthly transfers to your alternative account— you will have an additional amount of money every month. For instance, break the average of Rs. 3,000 into Rs. 250 each month. With this continuous flow of money, making payments of the bills will get an easy task.
Put a Feather in your Cap:
You have worked hard, and yes, you deserve it! Be heedful of the financial situation, but do not get frightened of putting a portion of the income tax refund away for you. Here’s something worth celebrating over—make use of your income tax return status as the core to save for your most fervently assumed financial goals, such as your dream home, starting your own firm, or a magnificent vacation.
A Cut and Shuffle:
While rewarding yourself is definitely appealing, an income tax return is also a huge opportunity to make payments towards your mortgage, paying off long drawn-out debts, or finally beginning those emergency savings.
Step back and assess if you really need the things that you’re planning on spending on. Ask yourself, is there a wiser way to use the extra money lining your pockets? In my opinion, the best use of a tax refund is not to go and spend it all at once, but rather, use it to build a rainy day fund that can absorb small financial needs.
Double your Savings:
There are various options that you can take into consideration to assist you with the income tax refund:
- Contributions towards PPF
- EPF-Employer’s Provident Fund
- Home Loans
- HRA-House Rent Allowance
- Life and Health Insurance
Contributions towards PPF:
Investments made in the small saving tools begin from Rs. 500 up to Rs. 1.5 lakhs with an interest rate of 8 percent per annum.
Despite the fact that the lock-in period is 15 years, the withdrawal enjoys certain benefits, namely that the withdrawals, the investments, as well as the gains, are totally tax-free.
EPF-Employer’s Provident Fund:
The contributions made towards EPF by the employer are tax-free, and the contributions made by you are deductible u/s 80C of the Income Tax Act.
You can claim the total amount of PF that is deducted annually as deduction while calculating the total taxable income.
Hence, the lump sum withdrawal, the interest earned, and the money invested in your EPF after the specific period of time is exempted from income tax.
If you have taken a home loan and you have to repay the loan, then you can claim deductions against the repayment of the principal up to Rs. 1.5 lakhs u/s 80C.
HRA-House Rent Allowance:
You can also claim a deduction against the rent you pay, if you stay in a rented accommodation, basis HRA is a section of your salary.
Life and Health Insurance:
Investments you make towards life insurance can offer you a tax deduction up to Rs. 1.5 lakhs on the payment of premiums you make for your insurance coverage.
Payment of health insurance makes you eligible to claim a deduction up to Rs. 25,000 u/s 80D of the IT Act 1961.
Wrapping it up!
Do not wait until the last moment, to begin with, the preparation for taxes, as you will wish to give your tax advisor or yourself enough time to find the best credits, filing strategies and most deductions.