Budget likely to give relief to income tax payers

New Delhi: Income tax payers are likely to get a major relief in the Budget 2008-09, as the government prepares itself to please the middle class in the election year.

Finance Minister P Chidambaram can give a marginal but visible relief to personal income tax assessees this year, as tax collections have substantially improved over the past three years, sources said.

With buoyant tax collections in 2007-08, there is significant pressure on Chidambaram to reduce the effective rates. The Minister himself has acknowledged that with better tax compliance, there could be a case for cut in rates.

The minimum income threshold limit for income tax payer could be raised from Rs 1,10,000 to Rs 1,25,000 or Rs 1,30,000, sources said.

Similarly, the income threshold for 30 per cent tax rate could be raised from the current Rs 2,50,000 per annum, sources said, adding that this had been kept constant since fiscal year 2005-06.

Tax payers would get a relief of Rs 1,500 to Rs 2,000 even if the Finance Minister decides to raise the minimum income threshold limit of income tax by Rs 15,000 to Rs 20,000 to offset the impact of inflation and submission of Sixth Pay Commission report later this year.

An announcement on the new income tax code is also expected in the Budget.

The Finance Minister had earlier said that the code, aimed at simplifying the tax laws, would be put for public comments shortly.

Apart from pleasing his party colleagues and voters, the tax relief will also help Chidambaram to address the recent slow down in industrial production.

More income in the pockets of consumers will boost demand for consumer goods as well as household savings for investment.

Another option before the Finance Minister, the sources said, could be to increase the ceiling limit for savings under section 80C from Rs 1,00,000 to a more reasonable level of Rs 1,25,000.

The increased limit could be specified for investment in infrastructure sector, which requires around 500 billion dollars investment over the next five years.

According to tax consultancy firm KPMG, India needs to realign its income tax slabs to attract more investment.