The government is thinking of reworking the income-tax slabs, while retaining exemptions for individual taxpayers on housing loans and specified savings instruments under section 88 of the Income-Tax Act.

The number of exemptions available to industry could, however, be reduced.

The government is also planning to continue the tax exemptions, which had been extended on social grounds, like those available to hospitals and religious and charitable institutions. Further, exemptions available to infrastructure projects are also proposed to be continued.

Tax rebate under section 88 is provided for investments in instruments like National Savings Certificates, Public Provident Fund, tax-savings units of mutual funds, life insurance premium infrastructure bonds and repayment of housing loans.

Finance ministry officials told Business Standard the government was reviewing the tax slabs. They said small taxpayers could be given some relief.

"The tax approach in this year's Budget will be in line with the government's focus on the common man. The intention of the government is to make the lower income category better off," a senior ministry official said.

Officials said the basic objective of restructuring the tax slabs was to ensure that the structure was simple and user-friendly while effectively generating revenue.

Currently, individuals earning up to Rs 50,000 annually are exempted from income tax, while those with income up to Rs 60,000 fall under the 10 per cent bracket.

People in the Rs 60,000-150,000 bracket are required to pay 20 per cent income tax and those earning more than Rs 150,000 have to pay 30 per cent. Further, there is a 10 per cent surcharge on income exceeding Rs 850,000.

The Kelkar Taskforce on Direct Taxes had recommended replacing the three slabs with two. The first slab of Rs 100,000-400,000 was proposed to be taxed at 20 per cent, while those in the above Rs 400,000 category would be subjected to 30 per cent rate.

The task force had also recommended doing away with the tax exemption on interest payments on loans for self-occupied houses and instead replacing it with an interest subsidy of two per cent for housing loans up to Rs 500,000 to all borrowers.

In doing so, the government, it said, would be able to target the low-income households and cover 85 per cent of the borrowers from the low-income group.

The Advisory group on tax policy for the tenth plan under Parthasarathi Shome, who is now the advisor to the finance minister, had recommended that tax incentives under sections 88 and 80L be done away with in a phased manner.

The Kelkar Taskforce too recommended that tax rebate schemes under section 88 for savings be eliminated. It also proposed that the standard deduction for the salaried class be reduced to nil.