The proposals before the ministry is to hike the tax exemption limit from the existing Rs 2.5 lakh per annum to at least Rs 3 lakh if not 5 lakh, they said. 

Besides, the tinkering of tax slab is also being actively considered by the ministry to give substantial relief to middle-income group, especially the salaried class, to help them tide over the impact of retail inflation, which has started inching up. In the last Budget, Finance Minister Arun Jaitley left the slabs unchanged but gave marginal relief to small tax payer by reducing the rate from 10 per cent to 5 per cent for individuals having annual income between Rs 2.5-5 lakh. 

In the next Budget to be unveiled on February 1, the government could lower tax rate by 10 per cent on income between 5-10 lakh, levy 20 per cent rate for income between Rs 10-20 lakh and 30 per cent for income beyond Rs 20 lakh. At present, there is no tax slab for income between 10-20 lakh. 

“Considering the steep rise in cost of living due to inflation, it is suggested that basic limit for exemption and other income slabs should be enhanced to give benefit to low income group. 

The income trigger for peak rate in other countries is significantly higher,” industry chamber CII said in its pre-Budget memorandum to the finance ministry. Although the industry chambers want the government to reduce peak tax slab to 25 per cent, it is unlikely that the ministry will agree to that due to pressure on fiscal deficit. 

The subdued indirect tax collection following roll out of Goods and Services Tax from July 1 last year has put pressure on the fiscal deficit, which has been pegged at 3.2 per cent of the GDP for 2017-18. 

The Centre recently raised borrowing target by additional Rs 50,000 crore for the current fiscal to meet the shortfall. According to industry body Ficci, there is a likelihood that demonetisation effects may linger on for some more months and hence there is a need to further boost demand and therefore, the Centre should consider revision of income tax slabs, by raising the income level on which peak tax rate would trigger. 

“This would improve purchasing power and create additional demand. For individual taxpayers, 30 per cent tax rate should be applicable only if the income is above Rs 20 lakh.”