As he prepares for India's 2002 budget in the midst of an economic slowdown, Finance Minister Yashwant Sinha knows that he has to try to bring in more tax revenue while at the same time not annoying tax-payers.

A recent report from the Planning Commission advisory group on tax says however that the maximum level of standard taxpayer's deduction should be brought down from Rs 30,000 to Rs 15,000. The group's view is that since transport allowance is permitted as a separate deduction and most employers provide books and periodicals at their own expense, there is no need for such a high standard deduction.

However, says the Times of India, there is an opposing view that the standard deduction is a proxy allowance that salaried employees get for expenses incurred in earning an income. The present tax laws have very small allowances for expenses such as education and childcare.

Sinha has often said that exemptions will be examined in Budget 2002. The advisory group has recommended that several exemptions including leave travel allowance and the housing rent deduction should be done away with.

The advisory group has also recommended the abolition of a raft of other personal tax breaks including savings incentives (exemptions on contributions to LIC pension funds and rebates for investing in LIC, National Saving Certificates and the Public Provident Fund) and exemptions for payment of medical insurance premia.

These suggestions are probably not realistic since they would face fierce resistance from the salaried class, already up in arms against the strict provisions on perquisites which have recently come into force.

In exchange for tightening up on allowances the Finance Minister could remove the two per cent surcharge which was introduced to pay for crises like the Kargil war and the Gujarat earthquake.