Many retail investors who suddenly win a lot of money in one shot in a lottery or out of the blue, squander because of unscrupulous financial advisors. Here’s a concise guide to help you be smart with your windfall gains

In life one may have the good fortune to receive an unexpected or windfall by way of large amount just from out of the blue. Such receipts are termed discretionary cash— large bonus or incentive or award from employer, share of disputed/undisputed ancestral property long forgotten, a bounty bequeathed by an issueless aunt or uncle, winning a lucky bet or lottery or a buy-back or acquisition of shares of a dabba company that has ceased operations ages back. It is said “Bhagwan, jub dethe hai to chapper phad ke dhetey hai” when the Almighty chooses to give his bounty, it simply doesn’t rain but pours!
 

Taxation laws require the payers—employers, lottery managements or corporates to mandatorily deduct appropriate tax at source from their payments and issue a tax deduction certificate (TDS). The recipient has to furnish them with the PAN card. In case the one is not liable to tax, the refund of this tax deducted can be claimed by filing an income tax return (ITR) at the end of the year.
 

Since none of the receipts have anything whatsoever to do with one’s regular income, naturally the question of putting this to use can be a major issue or source of worry more particularly for an aam janata belonging to middle/lower class. At no time earlier possibly the family have ever seen so much money or so many zeroes appearing on the cheque—their bank balances hitherto always being paltry thousands not even exceeding the magical number of Rs10,000!
 

Like bees attracting honey, from somewhere will pounce so-called self-styled financial experts or wizards luring them by promising them fabulous returns or even doubling the amount. Their sweet tongued power point presentations can be tempting and luring that can be cause for utter regret later. Even big names of educated beneficiaries like Suchitra Krishnamoorthi committed crores on the glib talk of relationship managers of foreign banks.
 

A part of these receipts ought to be placed in a personal emergency/contingency fund parked in bank fixed deposits. Without going into high funda financial planning, first and foremost any one to do is to build up or start off a fund comprising protective assets to meet medical emergencies or meeting routine household expenses in the event of temporary loss of income. It is always advisable this fund has to be nothing less than six months of monthly living expenses including loan repayments.   
 

Next, repay interest-bearing consumer or automobile loans for acquisition of assets like consumer durables, vehicles that depreciate to values to far lower than the loan outstanding at any given time.
 

Next, part can go to repay housing loans to bring down interest burden and EMIs. Setting up “side pocket” bank fixed deposits, shares to bridge shortfall in equity portfolio. You can invest upto 15% in gold in any form.
 

One can possibly consider making a donation to any credible charity for the cause of education or health or child welfare with trustees of impeccable record. Either way, make out an outright donation or set up an endowment with them, or else set aside the amount by way of a dedicated fixed deposit in one’s own name with bank, with the charity as the nominee and without fail remit to them from time to time the income derived there from. Donations to some charities entitle the donors to claim deduction ranging from 50% to 100% from the taxable income. Along with the receipt, they will attach the certificate issued by the income tax department to the payee.
 

High risk ‘passion assets’ like farm/beach houses, antiques, coins, paintings are not advised unless one is a real connoisseur who knows how to value and monitor them.

Check with tax consultant, someone who is not involved in financial management and who is not out to promote some scheme which fetches great commission.
 

These are simple rules of the thumb, tips and final decisions, and calls will depend on the facts and circumstances of each case. This is by no means any advice of one cap fits all sizes.
 

(Nagesh Kini is a Mumbai-based chartered accountant turned activist.)