Taxpayers will be looking forward to some relief from finance minister Pranab Mukherjee who is expected to raise the income tax exemption limit to at least Rs 2 lakh in his budget proposals to be unveiled in the Lok Sabha on Friday.

The minister may also marginally raise the slabs in other tax brackets of 10 percent, 20 percent and 30 per cent. The Direct Taxes Code (DTC) Bill has also made a mention of it.

The DTC, which will replace the Income Tax 1961, however, will only come into force from 2013-14 and the minister may make a formal announcement on it in his budget speech.

The Standing Committee of Parliament that has scrutinised the DTC Bill has already submitted its report to the Lok Sabha Speaker.

Although the Committee had suggested raising the tax exemption limit to Rs 3 lakh, it is unlikely that Mukherjee will agree to it in view of the need to contain fiscal deficit.

With limited space for give aways, the Budget is likely to balance populism with some tough measures to check tax evasion and generation of black money.

However, in view of reverses in the recently concluded state assembly elections, Mukherjee may go slow on economic reforms like FDI in multi-brand retail and further opening of the insurance sector to foreign investment.

There could be some bad news for prospective car buyers as government may hike duties on luxury items to raise resources.

The biggest challenge before Mukherjee would be to arrest decline in economic growth which is expected to touch a three year low of 6.9 per cent in the current fiscal, down from 8.4 per cent in the two previous years.

Further, the government is likely to set disinvestment target for the next fiscal at Rs 30,000 crore.