With record inflation, the government is under pressure to provide the common man tax relief by making last-minute changes to Budget 2007-08.

The tax proposals — including retaining the service tax at 12 per cent, raising the exemption limit on personal income-tax and a steep cut in peak customs duty — have figured in discussions between the Prime Minister’s Office and the finance ministry.

While earlier, the ministry was mulling a 2 per cent hike in service tax, which would have added Rs 7,000 crore to the government’s kitty, it now seems to be against the idea.

“With the phase-out of central sales tax beginning next fiscal, more services are likely to be brought under the tax net. This itself will be a burden to the common man.

Hiking the tax rate may not go down well,” said a government source.

While sources ruled out a review of personal income-tax rates, they said a review of tax slabs could be in the offing. The ministry has been thinking of increasing the limit on savings that qualify for income-tax deduction from Rs 1 lakh to Rs 1.5 lakh. The move will not only help increase domestic savings but would also leave more money in the hands of the salaried.

Another proposal being seriously discussed is a steeper cut in customs duties. While India’s long-term policy is to align its customs duties to the Asean level of 7-8 per cent, a 5 per cent cut in peak customs duty to 7.5 per cent would address supply-side constraints and help rein in inflation in the coming months, the sources said.