The Union Budget is likely to carry forward far-reaching tax reforms to spur investment, including a cut in corporate and capital gains tax rates, besides raising income tax exemption limit.

With India Inc demanding a cut in tax rate, there is every possibility that Finance Minister P Chidambaram may concede the demand for lowering the tax rate to 30 from 35 per cent, particularly in the face of industrial growth chinning up and revenue buoyancy.

Official sources said keeping in mind the promise made in the Common Minimum Programme for imposing a cess to fund primary education, Chidambaram is expected to slap a 2.0 per cent cess on various taxes, including corporate tax, which would slightly increase the rate.

To prop up the capital market, he is likely to remove the distinction between long- and short-term capital gains.

Capital gains, which are reinvested in equities, may be exempted from tax.

With CMP laying stress on higher public and private investment, especially in infrastructure, agriculture and export sectors, government is contemplating a separate Investment Commission.

Soon after assuming office, Chidambaram had said he would prefer to be called 'investment minister' as his priority would be to step up investment.

There are also indications that government may not fix a target for divestment in the face of the decision not to go for big-ticket privatisation of profit-making public sector units.

With various trade unions demanding a 100 per cent hike in income tax exemption limit from Rs 50,000, Chidambaram may consider raising the limit even though it may not be as high as Rs 100,000.

But it is quite unlikely that Chidambaram would tinker with income tax rates as it was already indicated that tax rates would be kept 'stable.'

While there could be some change in excise duty structure, sources said there may not be any cut in peak customs duty which was brought down to 20 per cent in the Mini-Budget announced by former Finance Minister Jaswant Singh in early January.

Industry captains have demanded lower excise and customs duties as it may increase the overall collection.

Most of the industry chambers opposed the cess on all central taxes as it would unduly increase the overall tax burden for India Inc.

In his Budget on July 8, Chidambaram may strike a balance as he has said that government will adopt a 'doctrine of proportionality' whereby the tax burden falls on those who can bear it.