A 2 per cent cess on taxes to fund primary education is almost certain in the Budget, but the middle class might get a relief through a hike in income tax exemption-limit.

Though the Common Minimum Programme of the United Progressive Alliance government talks of a cess on all central taxes, the finance ministry is undecided on imposing the cess on both direct and indirect taxes, official sources told PTI on Wednesday.

The cess on corporate tax and income tax is almost certain, sources said, adding the finance ministry is yet to decide if the cess could be imposed on customs and excise duties as well.

"If it is imposed on both direct and indirect taxes, the overall tax rate in the country would go up," a government official explained.

The cess will be calculated at 2 per cent on the corporate and income tax rates. It would not be added to the existing rates.

This means, the corporate tax rate would become 35.7 per cent if the rate is kept at the existing 35 per cent.

If the finance ministry concedes to India Inc's demand of slashing the corporate tax rate to 30 per cent, the overall impact after imposing the cess would be 30.6 per cent.

Official sources said the income tax exemption limit is slated to go up from the present Rs 50,000.

Trade unions and industry chambers have demanded doubling of the exemption limit in their pre-budget meetings with Finance Minister P Chidambaram.

While the exemption limit is to be raised, sources said some of the exemptions like standard deduction might be phased out. At present, the government allows a standard deduction of Rs 30,000 for the salaried class.

There is also a thinking that the 20 per cent tax rebate for investing in insurance schemes under Section 88 of Income Tax Act may be capped at Rs 10,000. At present, there is no upper limit for the exemption.

The finance ministry is of the view that if a person can invest over Rs 50,000 in insurance policies, he or she should certainly be in a position to pay tax.

Tax collections grew by 18 per cent at about Rs 253,000 crore (Rs 2,530 billion) last fiscal with direct taxes logging 27 per cent growth at over Rs 100,000 crore (Rs 1,000 billion) for the first time.

This year, the projections are that tax mop up may touch Rs 300,000 crore (Rs 3,000 billion) if the revenue buoyancy is maintained.

Considering this target, the cess might garner at least Rs 2,000 crore (Rs 20 billion) if it is imposed only on direct taxes.

But the figure can touch Rs 6,000 crore (Rs 60 billion) if it is imposed on both direct and indirect taxes, sources added.