A majority of taxpayers want Finance Minister Arun Jaitley to raise the basic exemption limit as also the tax deduction under Section 80C. Only 5% of the 829 respondents to an online survey conducted last week said the basic exemption and tax deduction limit should be kept unchanged in the Budget. While 52% of the respondents wanted the basic exemption limit to be raised to Rs 3 lakh, 43% wanted the limit to be linked to inflation and automatically raised every year. That's a good idea and could reduce the speculation generated in the weeks before the Finance Bill is tabled in Parliament.

Our cover story this week is a collection of Budget ideas for Jaitley and his team. We reached out to experts from various areas of the financial services industry and compiled their suggestions for the Budget. Most of the experts want the investment limit raised. "The Indian investor's equity allocation is very low and the Budget should address this serious issue. We are hoping for a separate Rs 50,000 limit for ELSS funds," says A. Balasubrahmanian, CEO, Birla Sunlife Mutual Fund. Others have sought new tax deductions and more options for retail investors. There are also suggestions for amending the tax rules for key goals such as retirement planning and education savings for children.

Budget needs to simplify tax laws
None of the experts has, however, asked for a simplification of the tax laws. ET Wealth believes that tax laws need to be simplified for better compliance. The Direct Taxes Code (DTC) of 2009 was a great piece of legislation and would have greatly simplified the financial lives of Indians. It had proposed to do away with the web of tax exemptions and deductions.

Income from all sources, including capital gains from stocks, maturity proceeds of insurance policies and even the PPF, was proposed to be taxed. There was also no distinction between short- and long-term capital gains. On the flipside, the basic exemption and the tax saving limit were raised. The tax slabs were also generously expanded. The 10% tax slab was extended to income of up to Rs 10 lakh a year, while the 20% tax slab was from Rs 10 lakh to Rs 25 lakh.

Most Indian taxpayers would have found the DTC proposal too revolutionary. It was also not acceptable to the political class, including the members of the ruling party. Even the bureaucracy baulked at the proposal. (One clause said official residences would be valued as a perk at market rates and the occupier would be taxed accordingly).

Taxpayers stand to benefit
Even so, the DTC would have been good for the common taxpayer. Our calculations show that the DTC would have lowered your tax outgo. We looked at the finances of a typical middle-class salaried person with a gross annual income of Rs 18 lakh, including capital gains and interest income from investments. If he avails of the various deductions that are ordinarily offered to employees, his tax would be roughly Rs 1.44 lakh. However, under the DTC his tax would be lower at Rs 1.33 lakh. This assumes a higher basic exemption limit of Rs 3 lakh and a Rs 5 lakh deduction for tax savings (see table).