In the backdrop of the Kelkar Committee report, which was expected to have a substantial influence on the Budget proposals concerning direct taxes, the FM's approach has been to pick up the good recommendations.

He has not only rejected the retrograde ones like the abolition of standard deduction for salaried employees but has taken a realistic view by increasing the deduction and extending the benefit to those who are getting salaries over Rs 500,000 and increasing tax benefits for senior citizens. This shows  the FM's positive outlook.

Similarly, maintaining deduction for interest at Rs 150,000 on home loans for self residence (as against Rs 50,000 recommended in the final report by Kelkar) is again a forward-looking step in the Budget. The benefits for the handicapped in income tax and customs duties, and extending benefits for providing medical benefit to private hospitals is another commendable feature in the budget proposals.

The FM has introduced major reforms concerning search, seizure and survey operations under the Income Tax Act. This has been an area of great hardship for tax payers and the FM deserves compliments for removing these.

The important proposals are:

• Non-seizure of stocks found during the course of search and seizure operations under any circumstances;
• Prohibiting the search officer from obtaining any confession from the persons searched;
• No survey operations will be authorised by officers below the rank of joint commissioner of Income Tax;
• Books of accounts impounded during such surveys will not be retained beyond 10 days without the prior approval of the chief commissioner of Income Tax; and
• Provision to release the seized asset within 30 days from the end of the month in which the asset is seized.

However, the abolition of the special provision in Chapter XIV B for completion of search assessments and the introduction of new provisions are likely to create new controversies regarding such assessments. The Kelkar panel which had recommended the abolition of the chapter has not given any reasons for this and hence the recommendation should not have been accepted more so when the FM has expressed great concern regarding stability and continuity in the tax laws in para 146 of the Budget speech.

Other welcome changes concerning direct taxes which have been proposed are:

• Increase in exempt income in terms of Section 80L from the present Rs 12,000 (9,000+3,000) to Rs 15,000 (12,000+3,000),
• Removal of surcharge in the cases of individuals and HUFs having incomes up to Rs 850,000;
• Removal of TDS requirement in cases of individuals and HUFs with regard to payments made for personal purposes;
• Making education expenses up to Rs 12,000 per child for two children eligible for rebate under Section 88 of the IT Act;
• Exempting royalty income in case of books up to Rs 300,000 in a year as also from exploitation of patents;
• Increasing tax rebate for senior citizens from Rs 15,000 to Rs 20,000.

Thus senior citizens earning an income of up to Rs 183,000 will not be required to pay any tax. Further relief can be availed of by such persons by making investments etc in terms of Section 88 of the IT Act.

Another irritant removed in cases of senior citizens introduced last year was denial of right to non-deduction of tax at source if the income exceeded Rs 50,000 and then approaching the IT department for getting refunds. The FM has done away with this bureaucratic hassle by providing that self-declaration filed by such persons with regard to no deduction of tax at source from interest income etc would be sufficient to provide a basis to the payer not to deduct the tax at source.

The proposals concerning administrative reforms are really good. What needs to be ensured is that these are implemented in the spirit in which these have been made.

However the fact remains that some of the proposals lack a coordinated approach, keeping in view long-term perspectives. Like past years, many areas picked up for making changes or to bring reforms indicate ad-hocism without mentioning what is proposed to be achieved in the long run and are not backed by empirical studies. Consider the measures concerning corporations.

These, it is said, would improve capital markets and induce the small- and medium-level investors to get attracted to the stock markets.

The changes proposed are:

• Exempting dividend income from tax from 1.4.03;
• No capital gains tax on shares of listed companies acquired after March 1, 2003 if these are sold after a lapse of a year or more;
• Reducing surcharge in the case of corporate assessees from 5 per cent to 2.5 per cent; however domestic corporations will be liable to a distribution tax at 12.5 per cent.

There was no tax on dividends after P Chidambaram abolished it. Then Yashwant Sinha re-introduced it last year. During the intervening period, no study was made to find out whether abolition of tax on dividends really boosted the capital market and induced small investors.

And now again the tax is being abolished on mere wishful thinking that this will revive the market and make small investors invest in equities.

Pages 1, 2, 13, 14, 15, 16, 20, 23, 31 and 33 of the FM's speech refer to the changes made in agriculture. Considerable emphasis has been placed on the development of hi-tech horticulture and precision farming etc and a Price Stabilisation Fund of Rs 500 crore is being set up for the benefit of tea, coffee and natural rubber growers.

However, the FM has been totally silent with regard to taxing the rural rich . And there is not a single proposal which may be a deterrent for tax evaders.

In the two-hour, 15-minutes speech, the FM has touched many areas including direct taxes. But the budget should not be made into an annual ritual, but something which should provide longer vision and be aligned to the five-year plans of the country. This is possible only when a long-term fiscal policy is formulated.

Nonetheless, the FM needs to be congratulated for some of the good proposals concerning direct taxes in the Finance Bill.

The author is a former CBDT chairman