Giving a relief to the middle class Finance Minister Pranab Mukherjee on Friday revised the tax slabs for the next financial year.
"Today, as I stand before you, I can say with some confidence we have weathered this crisis well," Mukherjee told the Lok Sabha, the lower house of parliament, while presenting the federal budget for the next fiscal.
"That is not to say that the challenges today are any less than they were nine months ago, when the UPA (United Progressive Alliance) was voted back to power under the leadership of Sonia Gandhi and Prime Minister Manmohan Singh."
The finance minister proposed the following slabs for individual tax payers:
There will be no tax for income upto Rs 1.6 lakh. This was the same earlier.
For income between 1.6 lakh - 5 lakh, the tax liability will be 10%. The older slab was 1.6 - 3 lakh.
For income between 5 lakh - 8 lakh, the tax liability will be 20%. Earlier 20% tax was deducted on Rs 3-5 lakh income.
Individuals with income of above Rs 8 lakh will have tax liability of 30%. Earlier 30% was deducted on income of Rs 5 lakh and above.
The government would allow a deduction of up to Rs 20,000 for investments in long-term infrastructure bonds. The deduction would be in addition to Rs 100,000 allowed under Section 80C of India's Income Tax Act.
"The proposal to reduce the tax slab will benefit 60 percent of all tax payers," he said and added that he wished to hike the minimum alternate tax (MAT) to 18 percent of book profits from the present 15 percent.
Mukherjee said 46 percent of the plan allocation will be set aside for infrastructure, while hiking the outlays for rural and urban development, as also for education and healthcare. He also promised to implement the direct tax code from April next year, assured a simplified foreign investment policy soon.
At the same time, he budgeted a lower fiscal deficit of 5.5 percent of gross domestic product for the next fiscal, against the budget estimates of 6.8 percent for this fiscal, and promised to lower it further to 4.8 percent and 4.1 percent over the next two years.
The finance minister said three challenges he had listed last year remained today -- those of quickly reverting to a high growth path of 9 percent and cross over to double-digit expansion; making growth more inclusive and developing infrastructure; and strengthening food security.
"We hope to breach the 10 percent growth mark in not too distant future," he said, adding that the government will also review the fiscal stimuli to make the country's growth more broad based.
He also said Rs 35,000 crore ($7 billion) was raised by the government by way of divesting stake in public sector enterprises and that more will be accrue to the exchequer during the upcoming fiscal. The minister also promised more banking licenses for the private sector.
Mukherjee said in 2009, when he presented the interim budget in February and the regular budget in July, the Indian economy was facing grave uncertainties, the economy had slowed down and business sentiment was low.
This year, however, the budget has come against the backdrop of the Economic Survey for 2009-10, saying India's growth can go up to double digit levels in four years, with the country emerging as the fastest growing economy in the world.
The market reaction, as the finance minister read his speech was positive, with the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) ruling at 16,360.90 points, against the previous day's close at 16,254.2 points, with a gain of 106.7 points, or 0.65 percent.
Those in the packed house presided over by Speaker Meira Kumar, included Prime Minister Manmohan Singh, United Progressive Alliance (UPA) chairperson Sonia Gandhi and Leader of Opposition Sushma Swaraj.
This was Mukherjee's fourth budget of his career as finance minister and the second for the United Progressive Alliance (UPA) government in its second straight term after being voted back to office in May last year.
Although the budget speech also contained some policy pronouncements and other steps directed at reforms, it is basically an annual statement of accounts for the upcoming fiscal in terms of receipts and expenditure, along with direct and indirect tax proposals.
The budget was presented after a quick meeting of the federal cabinet inside the parliament house presided over by the prime minister for a customary approval for the proposals.