Finance minister P. Chidambaram with C. Rangarajan (left), chairman of the Economic Advisory Council, and Satish C. Jha (second from right), member of the council, in New Delhi on Wednesday. (PTI)

New Delhi, Jan. 16: The Prime Minister’s Economic Advisory Council today asked finance minister P. Chidambaram to adjust income tax slabs and cut indirect taxes on consumer goods to spur manufacturing growth.

The panel, however, opposed substantive cuts in income tax rates.

“Some adjustments in income tax slabs and so forth (could be made), but not any substantial reduction in tax rates,” council chairman and former RBI governor C. Rangarajan said after a pre-budget meeting with Chidambaram.

Rangarajan said the council’s view was that tax rates could be retained at current levels but slabs could be adjusted to some extent.

At present, the slabs are such that a male taxpayer does not have to pay taxes or file returns if he earns up to Rs 1.1 lakh annually. Women and senior citizens are exempted from paying tax up to annual incomes of Rs 1.45 lakh and Rs 1.95 lakh, respectively. Taxpayers can also deduct up to Rs 1 lakh from incomes if they invest in specified securities.

North Block officials said they were mulling a proposal on increasing the tax slabs.

Personal income tax collection up to the middle of December has grown 42.83 per cent to Rs 65,774 crore against Rs 46,051 crore a year ago.

This huge increase in collections of a tax that actually accounts for just a small fraction of government revenues gives the government scope to tinker around with the slabs that could endear it to the middle-class voters.

Rangarajan also expressed concern over the slowdown in manufacturing. According to him, this could pull down the overall growth in the current financial year to 8.5 per cent.

The Indian economy grew 9.4 per cent in 2006-07 and is expected to clock close to 9 per cent growth this fiscal.

Rangarajan and his fellow economists are in favour of lower excise duties in key manufacturing sectors, including consumer goods.

A committee, headed by Rangarajan, has already recommended changing the excise duty structure on crude oil to specific rates from the present ad-valorem rates.