Government provided some tax benefits in the form of tax exemptions and deductions under the Income Tax Act, 1961 which are being increased now at the discretion of the Government. The aim of this research paper is to determine whether there is a need to apply cost inflation index or any other method in increasing some popular tax exemptions and deductions – standard deduction on salary income, exemption given to retirement benefits like encashment of leave salary and VRS compensation and tax benefits on savings and medical insurance premium paid. Primary data is collected from income tax payers in the city of Visakhapatnam, India covering various categories of tax payers. The results of analysis reveal that a large majority of tax payers favoured adoption of cost inflation index in increasing all these exemptions and deductions so that Government control will be removed. Since cost inflation index is already being used in computation of tax on capital gains, it is suggested that Government extend the benefit of cost inflation index to these selected tax exemptions and deductions as well.