Unveiling the reform agenda for the Budget, Finance Minister P Chidambaram has said a comprehensive law would be prepared next year to overhaul the Income Tax Act.

"The expert committee will be divided into four working groups to look into changes to be made in the Income Tax Act. They will present separate reports and we will prepare a comprehensive law next year," Chidambaram said in an interview.

The expert committee would also examine the reports given by various committees including the Kelkar Committee on changes to be made in the Income Tax Act, he said in the interview to the weekly magazine The Week.

Chidambaram admitted there are opportunities for black money to become white. Also, there are a large number of incomes such as agriculture, which are tax exempted."

"Thus in India, money changes colour every hour. If somebody has a better idea to get this money out, they should suggest it," he said indicating his difficulty in finding a scheme to deal with black money without amnesty.

• Everything about the Fringe Benefit Tax

He, however, ruled out any amnesty scheme to unearth black money even though it is effective.

Searches and seizures are generally described as 'blunt instruments,' he said, adding, "I can only depend on the annual information report, the banking transaction tax, and the third party information. In the system we have today, It is not possible to unearth Rs 10,000 crore (Rs 100 billion) of black money. Only an amnesty scheme can do that. But such a scheme is rule out."

Asserting that the opposition to transaction tax has virtually died down, Chidambaram said it was not a revenue raising measure but an administrative one to 'plug a gaping hole.'

"No one is affected by this tax except those who want to launder money," he said.

On Fringe Benefit Tax, he said the demand that it should be repealed cannot be accepted. "It is a presumptive tax. The approach to presumptive tax must be understood."

FBT, he said, is based on the universally accepted principle that compensation to employees must be taxed on the basis of cost to company.

On Value Added Tax, Chidambaram said he was in constant touch with states which have not implemented it.

"All of them have told me they are moving towards VAT. It is a political decision that the Bharatiya Janata Party has to take in Madhya Pradesh, Chhattisgarh, Jharkhand, Gujarat and Rajasthan. Uttar Pradesh and Tamil Nadu are unique cases. They have to decide whether they want to take advantage of VAT," he said.

Turning to financial sector reforms, dubbed as second generation reform, Chidambaram said: "I agree it is time for rejuvenating the financial sector, that includes reforms of banking, insurance and pensions."

"The second generation reforms mean the bill to change the pension law and two banking bills," he said, adding that political consensus was emerging but it would take some more time.

Expecting the bills to be passed in the winter session of Parliament, he said there was more to be done after its passage with Left having different point of view.

Regarding the low position of India (127th) in the UN Human Development Index, Chidambaram said this was a 'long haul' and the government would have to deliver on primary and secondary education and health care. "As delivery improves, I am confident that India would move up the Human Development Index ladder."

On the Economic situation, Chidambaram said the aim was to maintain seven per cent growth and the target was eight per cent. "The real factor is higher growth in investment. Unless the investment to GDP ratio goes up, we cannot expect growth to be much higher than 7 per cent."

He said the oil price hike would impact inflation two to three weeks from the date the increase was announced.

But since the money supply was being managed well and Government borrowing would be within the limits indicated in the budget, "I think we should be able to keep inflation low. This is our endeavour."

Turning to the bull run, Chidambaram said as long as the Price to earnings (P/E) ratio are in the comfort zone, there was no cause to worry.

Foreign investors also have great confidence in the Indian market which was widely believed to be a well-regulated market, he said adding this along with strong economic fundamentals and good corporate quarterly results were pushing up the Sensex.

Asked if Sensex would soar beyond 10,000, he said it would be foolish to predict any number without relating Sensex to corporate results and P/E ratio. "If these factors result in a further rise in the Sensex, we are in the comfort zone."