Got your tax refund this Diwali? Here's how to put the money to good use

Tax refund during Diwali

This Diwali season brought an added cheer for thousands of taxpayers, with income-tax refunds flowing into bank accounts across the country, providing a boost to household and businesses at a time when spending is high.

“The Income Tax Department has shown a noticeably proactive approach in processing refunds considering the Diwali festive season, and quite a few of our clients have received their amounts during the Diwali period itself. In fact, several refunds credited over the past week have been substantial, many exceeding Rs 50,000 and even going well beyond that in some cases,” Himank Singla, founding partner at SBHS & Associates, said.

According to Singla, nearly half of eligible taxpayers in his client base have received their refunds. “If I were to estimate, around 40–50 percent of the clients who were eligible for refunds have received the amount, while the remaining are in various stages of processing,” he added.

The timing coincided with the festival season bringing a relief, especially for small businesses and salaried segments who often plan liquidity around this time of year, he said.

While many attribute the Diwali-time refunds to the tax department’s efficiency, some experts believe there is no special initiative behind the timing.

"I don’t think there is any special refund drive on occasion of Diwali. Getting refunds on Diwali can be pleasant coincidence. As it is, department is very active and prompt in processing refunds nowadays," said Sujit Bangar, founder of Taxbuddy.com.

Refund delays, however, continue for many, particularly those with larger claims or cases involving verification issues. “This year ITR processing and refunds are much slower as compared to last year. We filed ITR of one NRI senior citizen in July. Her ITR processing and refund of above Rs 8 lakh are still pending,” said Pratibha Goyal, partner at PD Gupta & Co.

Returns where bank details were not pre-validated or where Annual Information Statement (AIS) mismatches exist are also facing delays.

“Compared to previous years, the turnaround time between filing of returns and actual refund credit has been much longer this year,” Singla said.

Returns verified in June-August have, in many cases, were settled by mid or late October. It appears that the systems have become more streamlined and cautious, ensuring faster verification and fewer tax leakages, he said.

It is a refund, not a bonus

The refund may feel like a bonus but it's important to view it as a return of excess tax paid not additional income. It is advisable to use the refund wisely rather than spending it impulsively.

Here are some prudent ways to make the most of your refund:

Build an emergency fund: If you don’t have at least 6 months of living expenses saved, park your refund in a liquid or FDs for emergencies.

Repay high-interest loans: Use the refund to reduce credit card dues or personal loans, where interest rates are typically above 18–24 percent.

Invest: Redirect the refund into SIPs for long-term goals like children’s education, home purchase or retirement.

Buy insurance: If you don’t have adequate health or term insurance, use the refund to secure financial safety for your family.

Don't splurge: It is tempting to treat the refund as festival surplus money, but thoughtful use can strengthen long-term finances.

As the tax department continues processing returns, pending refunds are expected to be cleared gradually. 

The income-tax department has up to nine months from the end of the financial year to process a filed return.

For those still waiting for refunds, processing can be expedited by verifying bank account details, resolving discrepancies in forms 26AS or AIS and promptly responding to notices. For those who received their refunds in time for Diwali, the money can be used wisely to prolong festive cheer.