Tax payers can expect some relief from high inflation in Budget 2011-12 as the government may raise the income tax exemption limit for individuals.
"Finance Minister Pranab Mukherjee is alive to the price situation and its impact on the common man," sources said, adding he would favourably consider the issue of hiking tax exemption limit.
Moreover, they said, as the government is committed to raise the income tax exemption limit from Rs 1.6 lakh per annum to Rs 2 lakh in line with the Direct Taxes Code (DTC) in 2012-13, tax payers could expect at least some relief in the upcoming Budget on February 28.
"The finance ministry would keep in mind the high inflation in the Budget. Since there is no dearness allowance for a vast section of the society, hike in income tax exemption limit is likely," a source said.
Presently, income up to Rs 1.6 lakh is exempt from tax for individuals. For women and senior citizens, the limit is 1.9 lakh and 2.4 lakh, respectively.
However, under the the DTC Bill which was introduced in Parliament last year, the I-T exemption limit is of 2 lakh.
In the DTC bill, the government seeks to widen tax slabs to levy 10 per cent rate on income between Rs 2 lakh and Rs 5 lakh, 20 per cent on Rs 5-10 lakh and 30 per cent above Rs 10 lakh.
The DTC, which would replace the Income Tax Act, is slated to come into effect from April next year.
"Since inflation is eating into the income of the people, some of DTC provisions can be implemented to benefit the common man," the official added.
Inflation, particularly the food inflation, has been a concern for both the government and the common man. For past few months, food prices have been staying at very high levels.
The wholesale price food inflation rose to 15.57 per cent for the period ended January 15, on escalating vegetable prices, particularly, onions. It was at 15.52 per cent for the week ended January 8.
The overall inflation in December last year had also gone up to 8.43 per cent, up from 7.48 per cent in the previous month, mainly driven by costly food items.
Recently, P Chidambaram who served as Finance Minister before moving to the Home Ministry in the previous UPA regime, said that there is no tax worse than inflation.