Finance Minister P Chidambaram seems to be satisfied that the relief given "should warm the hearts of the taxpayers" (Para 15 of Budget speech). However, this does not hold true for women, senior citizens and salaried employees.

Women taxpayers get no more relief than other taxpayers as the higher exemption limit of Rs 1,25,000 does not give them any extra benefit. Their incomes up to Rs 1.25 lakh were tax free during 2004-05 and the same position continues for 2005-06 also.

The senior citizens are affected adversely. Their tax liability before and after the new proposals are enacted would be as follows:

Pensioners were given tax benefits for a purpose. In the Finance Bill 1992-93, the then finance minister, Manmohan Singh, said it was done "taking note of the financial difficulties encountered by persons in old age". Jaswant Singh as finance minister also showed concern for "the second largest number of elderly persons in the world". 

Suddenly, such considerations have ceased to have any relevance and tax benefits to such persons have been considerably reduced without any grounds. Denial of standard deduction to salaried employees is, prima-facie, a wrong decision.

The finance minister said, "Given the higher exemption limits and scaling up of tax brackets, the need for a separate personal allowance does not exist. Therefore, in conformity with growing international practice, I propose to remove the SD."

It is wrong to presume that SD is a "personal allowance". It was first given in 1975 in lieu of "employment-related expenses". Other assesses are entitled to deduction of expenses incurred for earning income, why deny it to salaried persons.

Further, benefit of scaling of tax brackets benefit all categories of taxpayers, not merely salaried persons. Finally, there is no universal practice of disallowing SD. In Malaysia, Indonesia, Germany, UK, Japan, France, Thailand, among others, SD is allowed.

Bringing individuals and corporations at par at the final level of tax and levy of surcharge of 10 per cent seems unwarranted. Raising the limit from Rs 8.5 lakh to Rs 10 lakh is merely an ad hoc increase without any basis of study.

Allowing flexibility in investment decisions up to Rs 1 lakh for tax benefit is a welcome decision, but following the system of deduction (instead of tax rebate at the rate of 20 per cent on qualifying amount as at present) is, regressive as it gives more tax benefit to persons in higher income groups vis-�-vis those in lower income brackets.

Hence, the new scheme should be replaced by the scheme of rebate as at present.

Banking cash transaction tax seems to be beyond the ambit of income-tax law, which provides for taxation of incomes- not withdrawals. Moreover, it appears to be not within the powers conferred on the Union Government by Article 246 (List I) of the Seventh Schedule, read with Article 265.

Also, this levy destroys the neutrality in the system as it applied only for withdrawals from scheduled banks. This can lead to movement of funds from scheduled banks to non-scheduled/cooperative banks, etc.

This measure would subject banks to more costs because this will lead to enormous paper work and change of software for ATMs.

Considerable problems are likely to be created on account of fringe benefit tax. This proposal needs to be reviewed.

Taking out mobile phones from the one-by-six criteria and adding electricity payments of Rs 5000 in a year are just ad hoc decisions. Such moves affect the credibility of the system.

The change in the rate of corporate tax from 35 per cent to 30 per cent to align it with the maximum marginal tax for individual has no rational as the two entities are not identical as a corporation has the benefit of perpetual succession and limited liability.

Besides, the reduction in rate would be neutralised by 10 per cent surcharge, 10 per cent reduction in depreciation rate for plant and machinery and fringe benefit tax. It is doubtful if any purpose. In the process, the tax law gets more complicated.

The Finance Act is an annual exercise, but it has to be set in a long term frame for long-term goals. Making changes on an ad hoc basis is of no use as the experience of past years in India shows.

Hence, the budget-making exercise needs to be aligned to a long-term fiscal policy or the five-year plans of the country.