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Income-tax payers are likely to get a major relief in the Union Budget 2008-09, to be presented in Parliament on February 29, as the government prepares itself to please the middle class with general elections just a year away. The finance minister, Mr 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.

With buoyant tax collections in 2007-08, there is significant pressure on Mr Chidambaram to reduce the effective rates. The minister himself has acknowledged that with better tax compliance, there could be a case for a cut in rates. The minimum income threshold limit for an income-tax payer could be raised from Rs 1,10,000 to Rs 1,25,000 or Rs 1,30,000. Similarly, the income threshold for the 30 per cent tax rate could be raised from the current Rs 2,50,000 per annum, adding that this had been kept constant since the fiscal year 2005-06.

Taxpayers 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 the Sixth Pay Commission report later this year. An announcement on the new income-tax code is also expected in the Budget. The tax relief will also help Mr Chidambaram to address the recent slowdown 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, 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 the infrastructure sector, which requires around $500 billion investment over the next five years. Another benefit which could be relooked by him is the tax structure on interest payable in case of loans taken for purchase of house property. At present, interest up to Rs 1,50,000 per annum is allowed as a tax deduction if the property is used for self-occupation.