With the Law Ministry discouraging any changes in the Finance Bill, acting Finance Minister Pranab Mukherjee is considering cutting Customs and excise duties and service tax to provide the third impetus for an economic recovery.

According to senior officials, Mukherjees closing speech on Wednesday before the interim budget is put to vote could propose a two per cent across-the-board cut in Customs and excise and an equal percentage cut in service tax.

After Mukherjee had moved the Bill, the Finance Ministry proposed to raise deductions on interest paid on home loans to Rs 2 lakh from the current Rs 1.5 lakh and exemption limit under 80C to Rs 1.20 lakh from Rs 1 lakh. But this met with resistance from the Law Ministry which said that introducing amendments to the Finance Bill was not permissible. Any suggested amendment could attract a division vote and if it were voted against, the Government would have been deemed to be voted out of power. But indirect taxes could be tinkered with through notifications, an official said.

So sources said that the cut in indirect taxes was likely to happen as the last stimulus in December had failed to prod the economy after the global meltdown.

The UPA in December implemented a 4 per cent cut in excise duty on non-petroleum items, with a few exceptions. As for service tax, industry has been pitching for reducing it to 10 per cent from the current 12.