Smart Ways to Use Your Tax Refund

September 1, 2021 Trading 3 min read
Smart Ways to use your tax refund

Taxes: No one wants to pay them, but you don’t have a choice! 

For any citizen in any country making the rightful tax payments is an obligation with financial repercussions if not planned well. Tax planning is a crucial element of money management

Financial planning experts will tell you that although you have to pay taxes, you can claim a tax refund using legal means.

Many people often resort to stealing taxes, which is a criminal offence. Governments across the world are not kind to tax defaulters. On one hand they refuse to contribute towards the country’s development, while on the other, thrive off hard-working taxpayers’ funds. It is these taxes that allow a government to provide infrastructure and healthcare among other things. 

In India, there are different tax slabs depending on your income. 

As per the new regime of the Union Budget for FY2021-22, below are the current income slabs and respective taxation: 


Income Tax Slab Rates for Income Tax Slab FY 2021-22 (New Regime)
₹0.0 – ₹ 2.5 Lakh NIL
₹ 2.5 Lakh- ₹ 3.00 Lakh 5% (Tax rebate permissible under section 87A)
₹ 3.00 Lakh – ₹ 5.00 Lakh 5% (Tax rebate permissible under section 87A)
₹ 5.00 Lakh- ₹ 7.5 Lakh 10%
₹7.5 Lakh – ₹ 10.00 Lakh 15%
₹10.00 Lakh – ₹12.50 Lakh 20%
₹12.50 Lakh – ₹ 15.00 Lakh 25%
> ₹15.00 Lakh 30%

This is the old regime for taxation in FY 2021-22.

Income Tax Slab Taxpayers Under 60 Years of Age
₹ 0.0 – ₹2.5 Lakh NIL
₹2.5 Lakhs – ₹5 Lakh 5%
₹ 5 Lakhs – ₹ 10 Lakh 20%
> ₹ 10.00 Lakh 30%

The taxation rules vary for senior citizens. 

Each citizen who falls under a slab will be taxed for the income they make from their business or job, rental income, investment earnings, etc. At the end of every fiscal year, you need to file your income tax. Many people struggle to plan their personal finance and taxes, and end up making hurried filings, which does not give them time to apply for a tax refund

Throughout the year we pay for services and other taxes like TDS, which could entitle us to a deduction or a rebate during the final income tax filing. You can get a tax refund if you find out after calculation that you have paid more than liable for.

Once you have your tax refund, your next course of action should be planning what to do with it. Following are a few tips to make wise use of your tax rebate: 

Clear off debt 

Debt, loans or credit has to be paid back to the lender with interest. As time passes, the interest grows, making the repayment a tad bit expensive. Use your tax refund to settle credit card dues right away. Pay your friends back from whom you borrowed to get through the month. Now that you have a surplus, use it to settle a few long-term loans that you pay as monthly instalments. A lot of this would also depend on the amount of the refund. Nonetheless, use it wisely to clear your dues.  

Invest in retirement funds

Small-term savings irrespective of their size can contribute to bankable long-term investments. You can invest in Equity-Linked Saving Schemes or ELSS, which will help you save on your taxes for the next fiscal as well. Moreover, ELSS helps you grow your wealth via investments in equities. You can also invest in the Public Provident Fund or National Pension System to generate long-term wealth assets for your retirement.  

Set up emergency funds

Oftentimes, even the highest earners among us find it hard to save enough for bad days. The reason could be we end up splurging far more than we ought to. Choose instead to save and set up emergency funds, particularly to handle a deficit or disasters. This way you grow your finances and remain stable.

Splurge, save and plan ahead

It’s good to save, but it’s also good to have a cheat day and treat yourself once in a while. 

Use your tax refund to buy some “needs” that you’ve been planning for. However, ensure to save at least a fraction of your tax refund. This shopping could also trigger a reward sentiment, which can push you to actively save taxes every fiscal.


How can you save taxes on your investments?

As per Section 80C of the Income Tax Act, 1961, making investments in ELSS, NPS, PPF, insurance, etc. can help you save INR 1,50,000 on your premiums paid towards these investments every fiscal year. 

Do we have to pay taxes?
Yes, if you fall under the eligible income slab. 

Are there specific investment tools that can reduce taxes? 

Yes. One can invest in NPS, which grants a reduction of INR 1,50,000 under Section 80C and INR 50,000 over and above the aforementioned reduction for contributions made. NPS also helps grow your money as ELSS does by investing in equities and debts. 

One can also invest in tax-saving mutual funds and fixed deposits to avail benefits as part of your personal financial management. 


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