If you are a businessman and you get a big income tax refund, it is time you changed your CA. An advance tax is something that you pay based on an estimate. Thus if your CA (or you) over estimated your income and because of that you are getting a refund, well, improve your ability to predict.

If you are an employee and got a big refund it is time you complained about your companies HR / Accounts who have DEDUCTED MORE tax than what was necessary for them to have deducted. It is possible that you showed them the proof late, or they made a mathematical mistake. Both are issues which can / should be addressed.

YOU SHOULD pay just enough tax as to cover your liability – nothing so much more that you get a ‘big’ refund.

When you get a refund – say your ctc is Rs. 200,000 a month and you get Rs. 48,000 as a refund (50%  of your take home pay!) how do you react?

1. are you so excited that you go and blow the whole amount?

2. upgrade your mobile?

3. buy the new television that you always wanted to buy?

4. invest the amount?

5. just let it lie in your bank account and not really bother about it?

Well, the human mind has various ‘pockets’ in which to keep the money. So if you earn your salary you think it is hard earned. If you are an occasional trader in shares, you think that profit is ‘undeserved’ and free money.

Similarly if you get an Income tax refund your mind thinks it is ‘found money’ – as if it was found on the ground. YOU KNOW IT IS WRONG, but go along with the mind.

So if you do get a refund split it into 3 parts – put one part into your pension fund, one part let it remain in the emergency fund and one part blow it on a party or upgrading your phone.

Keeping a pattern makes it easier.

Even better make sure that you calculate your tax correctly.