On the income tax front, the Budget may continue with the status quo on the tax slabs while it may tinker with the exemptions.

Rising rural distress because of back-to-back droughts have put considerable pressure on the Finance Minister to spend more on social schemes, while at the same time he has to win back foreign investors craving for faster reforms.

His difficulties have been compounded by the huge payout of Rs 1.02 lakh crore that will become necessary on account of the 7th Pay Commission recommendations for government employees. How much he does this without compromising on the previously-announced goal of lowering the fiscal deficit to 3.5 percent of the GDP next year is to be seen.

Jaitley is also likely to fulfil his last year's promise of gradual reduction of corporate tax from 30 percent to 25 percent over four years.

It is expected that he may begin the exercise in the Budget today that may be accompanied by withdrawal of tax exemptions to keep the exercise revenue neutral.

To shore up revenues to meet the increased expenditure, the finance minister may need to increase indirect tax rates or introduce new taxes. Service Tax, raised to 14.5 percent last year, may see a hike to prepare for the level of 18 percent being envisaged in the GST.
     
Further, new cess to fund initiatives such as Start-up India or Digital India and other programmes is being speculated, similar to the Swachh Bharat cess levied last year.

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