How can a small tax break be a substantial relief, MR FM?

The main objective of any tax system is to raise revenues to fund government expenditure. The amount of revenue raised is determined to a large extent by tax bases and tax rates.

The main objective of any tax system is to raise revenues to fund government expenditure. The amount of revenue raised is determined to a large extent by tax bases and tax rates. It is also a function of a range of measures — special tax rates, exemptions, deductions, rebates, deferrals and credits — that affect the level and distribution of tax.

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On Friday, finance minister Pranab Mukherjee offered a small concession to individual tax payers. He raised the annual income tax exemption limit by Rs 20,000 to Rs 2 lakh and also changed the tax slabs. The guiding principle of increasing the exemption limit is give more money in hands of people.

Mukherjee believes the tax breaks will provide “substantial” relief to taxpayers. But with prices rising, is it enough?