The proposal, he said, will benefit 1.8 crore tax payers entailing a revenue sacrifice of Rs 3,600 crore.
The other slabs and rates have been kept unchanged in view of constrained economy, he said.
"In a constrained economy, there is little room to raise tax rates or large amounts of additional tax revenues. Equally, there is little room to give away tax revenues or the tax base. It is time for prudence, restraint and patience," Chidambaram said.
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However, he said, "I am inclined to give some relief to tax payers in the first bracket between Rs 2-5 lakh....I propose to provide tax credit of Rs 2,000 to every person who has a total income of up to Rs 5 lakh. 1.8 crore taxpayers are expected to benefit, to the value Rs 3,600 crore".
As per the existing slabs, tax on income from 2 lakh to 5 lakh is at 10%, up to Rs 10 lakh is at 20% and above 10 lakh is at 30%.
In the Budget proposals for the next fiscal, Chidambaram proposed a surcharge of 10% on persons with income of over Rs 1 crore. The proposal will cover 42,800 individuals and tax entities.
"Even an moderate increase in the level of threshold exemption will mean that hundreds of thousands of taxpayers will go out of the tax net and tax base will be severely eroded," he said.
KPMG (India) Tax Partner Parizad Sirwalla said, "The overall slabs and tax rates remain same in view of the objective of widening tax base and increasing tax compliance".