Introduction
Diwali is rightly called the festival of lights. Along with the usual buzz around the festivities, one of the many perks of this festival is the Diwali bonus that most of us look forward to. It is not only an appreciation of the efforts that have been made by the employees throughout the year but also adds bling to the festival and motivates them to work in the new year with new gusto. So what do you do with this Diwali bonus? How to best utilize it? Given below are a few tips regarding the same.
Read More: Cheat sheet to utilizing bonus in the best way possible
Ways to use Diwali bonus
Most people think that the Diwali bonus is simply surplus cash that they receive each year and that just has to sit in their savings accounts. However, it is an opportunity that should be used strategically to strengthen one’s financial position. Some of the ways where the Diwali bonus can be allocated are mentioned below.
- Reduce your debt burden
One of the biggest expenses of an average individual is the EMIs that have to be paid each month. Therefore, any excess or surplus funds available should be directed toward reducing the loans. An important point to remember is that one should reduce the high costing loans at the earliest like personal loans or credit card loans as these are high-interest loans and the penalties on delay or default is higher.
- Building emergency or contingency fund
Every individual should have a contingency fund or an emergency fund and the recent events of covid pandemic and layoffs due to the recession are a testament to their importance. However, this is often ignored by most people. Many often say that they do not have enough money to build an emergency fund and therefore, it takes a backseat. Therefore, the Diwali bonus is an ideal opportunity to start an emergency fund and build on it year after year.
- Start SIPs
Mutual funds are an excellent investment opportunity for every investor class whether they are risk-averse or aggressive investors or have a short-term or long-term investment horizon. Therefore, they are a must in any investment portfolio. The Diwali bonus is an excellent way to start investing in mutual funds through SIPs or increase them which will help in meeting the investment goals faster.
- Add to the retirement corpus
Retirement is a definite eventuality but most individuals do not plan for it until it is glaring right in their faces. It is one of the gravest mistakes that most people make in their prime earning years by simply procrastinating until it is too late. Diwali bonus can be utilized towards retirement planning by adding these funds to an existing retirement plan or by starting one at the earliest. There are many retirement schemes available today like retirement-oriented mutual funds or government retirement schemes which can be a good addition to an investment portfolio and benefit at the time of retirement.
- Use the bonus on yourself
While we are focused on future financial independence and planning for the same, we often forget to live in the moment. Diwali is a time of celebration and the year is almost drawing to a close. This can be a good opportunity to spend quality time with your family and invest in them or carve some time out for yourself. Diwali bonus can also be used for short vacations, recreational trips, investing in some long-lost hobbies, and enjoying the time in the present. Another interesting option is to upscale your qualifications by investing in some educational courses that can be an asset in your resume or help in building an alternate career or additional source of income.
- Buy insurance cover
Insurance is a must and the need for the same can never be overstressed. The Diwali bonus can be used towards gaining additional insurance coverage or including a few necessary add-ons that can protect you and your family better. There are many options for term plans today that do not require recurring payments. Using the Diwali bonus for a one-time payment will solve the necessity of having insurance and put these additional funds to good use.
- Invest in PPF or NPS
PPF and NPS are good investment options that focus on the safety of corpus while at the same time providing adequate and stable returns in the long run. Diwali bonuses can be used to start these investments or make additional contributions to them which will not only add to the corpus but provide additional tax benefits. Both PPF and NPS provide tax deductions under section 80C up to Rs. 1,50,000. NPS also provides additional deduction of up to Rs. 50,000 under section 80(CCD). This can be a good source of tax planning and building wealth at the same time.
Conclusion
A Diwali bonus to many would seem a small amount that may not be as significant in adding to their investment corpus. However, it is the small contributions that eventually add to substantial wealth in the long term. By using the Diwali bonus in the most optimum manner rather than simply letting it sit in the bank account, one can truly gift their loved ones something special in the festival of lights.
A few other popular options where the Diwali bonus can be used are using it for children’s further education plans, getting additional health cover for the family, buying good or digital gold, using it for small repairs or renovations in the home, etc.
Yes. Diwali bonus can be used by investing in tax saving instruments like ELSS, PPF, bank FDs, NPS, life insurance, health insurance, donations under section 80G, etc.
Diwali bonus is a yearly bonus that is given by employers. However, this bonus is not a mandatory payment that has to be made by employers. So it is not a stable source of income. There may be a year or two when a person may receive a Diwali bonus less than what they anticipated or may not receive it at all. Therefore, adding them in the monthly budget will not be appropriate as the certainty of receiving them is not always present.
As per Income Tax Act, 1961, a bonus is part of the salary and is therefore taxable under the provisions of the Act. However, if the said bonus does not exceed Rs. 5,000, it is not taxable as per the provisions of the Act.
