Tax paying individuals closely follow the pre-budget reports and also the quotes of the Finance Minister in various media to get an inkling of what tax proposals the budget may throw up.

However, as the annual budget is still a close-door affair, we all need to wait until budget day for the actual tabling of the finance bill to understand what is in store for us on the tax front in the next fiscal year.

The Indian government is no exception to the rule. The annual finance budget provides it an opportunity to introduce measures to enhance compliance, widen the tax net and simplify the tax laws by having fewer incentives and exemptions.

On the other hand, the tax payers look out for tax concessions and reduced compliance. The outcome of the budget is essentially assessed on these parameters by the respective stakeholders.

Going by the demands of various associations and indeed the objective of the government to move towards simplification, Rajesh S and Sandesh Kumar, senior tax professionals with Ernst & Young give a bird’s eye view of some of the issues that perhaps could be covered in the finance bill 2007:

Moderation of Tax Rates

Tax rates have gradually been decreasing over the period of time from as high as 50% in the past to the current rate of 30%. However, additional levies in the form of surcharge and education cess have pushed up the maximum marginal rate to 33.66%.

Surcharge, which was introduced as a temporary measure has continued to be levied in the last couple of years. The government may be reviewing this element in the tax structure and looking at the looking at the possibility of doing away with the same.

Also, currently the maximum tax rate of 30% kicks-in on any income exceeding Rs. 2,50,000. 

Considering the growing salary levels in India, the salaried class would like to see some uplift in each of the slabs.

Standard Deduction

Couple of years ago, the standard deduction available to the employees was withdrawn by the government.

This had not been appreciated by the salaried class and consequently, the government might consider reintroducing this benefit atleast for income up to a certain level.

Increased Statutory Deductions

Currently, the ceiling limit for certain qualifying investments under section 80C of the Income Tax Act (the act) is kept at Rs 1,00,000.

There is an urgent need to increase investment in infrastructure. Considering this, the government may be evaluating an option of providing additional incentives to individuals who invest in companies engaged in infrastructure development.

There may also be a move to increase the ceiling limit to Rs 1,50,000. However, in case the ceiling limits are increased, it would benefit only those sections of individuals who can save and invest up to the enhanced limits.