Where to park your additional income generated out of proposed tax cuts in Budget 2008?

The recent budget has lot of goodies for tax paying individuals in the form of reduced income tax payouts through enlarged tax slabs. The new tax slabs are as follows:
Up to Rs150, 000 - NIL
150,000 to 300,000 - 10%
300,000 to 500,000 - 20%
Above 500,000 - 30%
The surcharge and education cess at 10% and 3% remains unaltered.

Due to the expanded income range for all the tax rates, there is a significant savings to individuals in the form of reduced taxes. Let’s assume, a person earning Rs600, 000 per annum, would be able to enjoy lower taxes to the extent of around Rs48, 000 p.a, which translates into Rs4, 000 per month. This is a real bonus! Now the question that comes up is how to utilize the same by prudently investing it in wealth generation avenues.

We think the surplus funds need to deployed in the following areas (depending on the individual’s situation a specific area takes priority)

Repayment of credit card outstanding:
For those who have outstanding credit card dues, it is better that you start re-paying it. Credit card dues have interest rates in excess of 30% p.a and cutting them should be the first priority.

Health Insurance:
It is vital to look at the Health Insurance coverage for self and families. In our opinion, medical costs can create big erosion in wealth in case of unfortunate major medical conditions. We strongly urge people to opt for a Health Insurance Floater policy for the family.
There is an additional deduction that has been announced in the budget with regard to the payment of health insurance premium for parents under sec 80 D up to Rs15, 000/- p.a. Further, the government has proposed that if either of such individual tax payer's parents is a senior citizen, the deduction would be allowed up to Rs 20,000. Please note that this is in addition to the already existing deduction of Rs15, 000 available for health insurance premiums.

Increasing the retirement nest egg:
The savings generated out of tax cuts should be canalized for increasing the retirement nest egg. If you don’t have a pension from your employer, which is mostly the case nowadays, we strongly urge you to start a pension plan with Insurance companies to create a retirement corpus. In case of retirement plans, we suggest that you go for pure pension plans instead of bundled products like pension plan with life insurance cover.

Increase your EMI's on housing loans:
If you are having sufficient leeway in your housing loan repayment, then you can also look at the possibility of increasing the monthly EMI's on your housing loan. It can help you to get higher tax deduction on principal repayment as well as help to reduce the loan amount/tenure as well as enhanced tax deductions on interest payments.

Planning for children’s future:
Children education and marriage related expenditure is known expenditure in the long run. Increasing contributions to the savings for these goals will help.

Contribute to charity:
It is a good idea to contribute 10% of your tax breaks to eligible charity. It helps us to contribute something back to the society and at the same time provides you further tax benefits in the form of deductions u/s 80G of the Income Tax Act.