Prime Minister Narendra Modi
Prime Minister Narendra ModiTwitter/allindiaradionews

The Central government is seeking to offer fresh benefits to middle-class taxpayers, and discussions on a possible package have already begun ahead of its final full Budget this year before the Lok Sabha elections of 2019.

Discussions are around the benefits such as an increase in the tax exemption limit, return of standard deduction in some form as well as additional benefits for health insurance and even fixed deposits, which have recently become less attractive due to the surge in stock markets coupled with increased demand for investment in mutual funds, Economic Times reported.

Last week, reports suggested that Finance Minister Arun Jaitley might also raise tax breaks offered on money parked in a slew of products like fixed deposits, insurance premiums and mutual funds from Rs 1.5 lakh to Rs 2 lakh a year under the popular "Section 80C" scheme.

The move is expected to encourage people to save more in financial instruments and prevent them from investing surplus funds in unproductive physical assets like gold.

According to the sources, the proposal for increasing tax benefits for people is in line with the government's stance of being seen to be pro-poor and middle class with the demonetisation and recent Goods and Services Tax (GST) reductions on several consumer products.

The Finance Ministry in November last year also said the introduction of long-term capital gains tax would end friction in the market and also tackle the problem of manipulation in penny stocks.

Arun Jaitley
Union Finance Minister, Arun Jaitley.Reuters

"Some market players believe that Securities Transaction Tax (STT) has also lost its utility and long-term capital gains tax makes sense now," said an official source.

However, the sources also said the tax package would be a political decision taken by Prime Minister Narendra Modi after detailed discussions with Jaitley.

Jaitley had earlier said the government believes in leaving more funds for people to spend and invest. However, with the tight fiscal position at present, the Centre will have to find more ways to mop up resources.