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Maximizing Your Finances: Smart Moves for Your Tax Refund Windfall in India

Posted on 13 Sep 2023
Author: Sayan Sircar

Tags: Tax

6 mins read
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Expert tips for maximizing your tax refund so that you can do the best thing to do for your portfolio in India.

Maximizing Your Finances: Smart Moves for Your Tax Refund Windfall in India

📚 Topics covered:

What is an income tax refund?
What are the basic checks when you get a windfall?
What you should not do right now?
Do you have a financial plan already?
How to adjust your financial plan with this extra money?

What is an income tax refund?

An income tax refund is issued once you file your yearly income tax refund and you have somehow paid extra tax. The return that you have filed is scrutinised, approved and then either a demand is produced, if tax is due or a refund is issued if you have paid excess tax.

There are many reasons why a refund might be due. A few examples are:

Making mistakes while filing like not splitting out HRA from total salary
Excess tax deducted due to not filing Form 15G/H on time for interest or dividends
When your company did not consider all the proofs you submitted for 80C and HRA deductions

etc.

What are the basic checks when you get a windfall?

Whenever you get some extra money, a few basic health checks should be made regarding your financial life:

an emergency fund with 6-12 months of expenses
a term insurance policy (unless you are retired with no income)
a health insurance policy (separate from the company provided one if any) for 10-15 lakhs as a base policy with a 50-100 lakhs super-top up
a personal accident insurance coverage to safeguard against accidents where you do not die but cannot earn
no high-interest debt like credit card or personal loans

If any of these are incomplete, please complete them before moving on to the next step. Consider if there is some small expense that you want to make, as a white goods purchase or a vacation, then allocate that money now. You will be investing the remainder as per goals in the same asset allocation as specified in your goal-based investing plan.

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What you should not do right now?

Suddenly having a bit extra money makes it easier to spend it. We are not against spending an extra ₹50,000 for a new phone, trip or white goods. However, just because you have some money now does not mean that you get swayed by your bank relationship manager or insurance agent to buy an ULIP, pension, endowment plan or something similar. You can read more on this point here: The agency problem in personal finance. What should you do?.

Do you have a financial plan already?

We insist that all investors should invest after creating a financial plan. Without a financial plan there are a lot of avoidable mistakes that tend to get made: 12 mistakes that interrupt compounding: what to do instead.

If you don't have a financial plan as of now, you can follow these case studies to create your own:

Case study: how can this middle-aged investor with two children plan for retirement and children's goals?

This article shows how a single-income middle-aged couple with two small children reach their retirement and children’s goals.
Case study: can this double income single kid family reach FIRE at 50?

This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?

This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
Case study: how this double income recently married family can perform DIY goal-based investment planning

This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Case Study: How should couples in their 40s with a new baby plan their financial future?

Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
Case study: how this double income single kid family can perform DIY goal-based investment planning

This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.

How to adjust your financial plan with this extra money?

Arthgyaan Have vs Needs Framework

Since your bank account now has more money, you can add this to your cash bucket and then use the Arthgyaan Have-vs-Need framework to reallocate this extra money into your other goals: How to invest a lump sum amount for your goals?.

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Worked out case studies for goal-based investing

Case study: how can this middle-aged investor with two children plan for retirement and children's goals?

This article shows how a single-income middle-aged couple with two small children reach their retirement and children’s goals.
Case study: can this double income single kid family reach FIRE at 50?

This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?

This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
Case study: how this double income recently married family can perform DIY goal-based investment planning

This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Case Study: How should couples in their 40s with a new baby plan their financial future?

Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
Case study: how this double income single kid family can perform DIY goal-based investment planning

This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.

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Topics you will like:

Asset Allocation (21) Basics (8) Behaviour (12) Budgeting (12) Calculator (25) Case Study (6) Children (17) Choosing Investments (40) FAQ (12) FIRE (13) Gold (22) Health Insurance (5) House Purchase (30) Insurance (16) International Investing (12) Life Stages (2) Loans (18) Market Data (8) Market Movements (17) Mutual Funds (46) NPS (8) NRI (19) News (18) Pension (8) Portfolio Construction (53) Portfolio Review (27) Reader Questions (8) Real Estate (7) Research (5) Retirement (38) Review (15) Risk (6) Safe Withdrawal Rate (5) Set Goals (28) Step by step (15) Tax (59)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

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