The direct tax orientation of Budget 2009-10 could best be summed up in one phrase -- great expectations deferred. Taxpayers entertained great hopes of a reformist budget from the new government, reinforced by the economic survey. The budget has created a gap between expectation and handout, stirring the hope for a better tomorrow through the proposed new direct tax code.

For individuals, a host of measures have been announced -- raising the exemption ceiling marginally, removal of the surcharge of 10% applicable for assessees with a total income above Rs10 lakh, enhancing the ceiling of deduction of medical expenses of handicapped dependents, and expanding the scope of deduction for interest on education loans to cover vocational education. These are welcome but fall short of expectations.

The exemption ceiling was widely expected to be raised significantly with a similar hope on increasing deduction of tax savings from the existing Rs1 lakh. A noteworthy initiative, however, is the extension of the presumptive tax scheme to small traders (not confined to individuals only) having a turnover less than Rs40 lakh with exemption from advance tax obligation. It's not known if the scheme will be extended to professionals also having gross receipts less than the threshold of audit requirement under section 44AB.

The abolition of the fringe benefit tax (FBT) will lead to taxability of perquisites, including stock options and other benefits like provision of car, contribution to superannuation funds exceeding Rs1 lakh, etc.

For corporations, the much-awaited abolition of FBT has happened, though the increase in rate of book profit tax from 10% to 15% is a dampener. But it is definitely ambitious to have all the benefits at one go. The extension of tax holiday benefits under section 10A/10B by one more year till March 2011 is a welcome move but does not lay down any long-term vision on the way forward for SMEs operating in the information technology segment.

As for incentives, expanding the benefit of weighted deduction for R&D to all in-house activity excluding investment in land for setting up cold chain storage, including warehousing and crosscountry gas pipeline, removing the anomaly in deduction for undertakings engaged in exploitation of mineral oil to include natural gas, are in response to the needs of the economy and industry.

On compliance and administration, the simplification of income-tax returns forms by bringing back the Saral 2 forms is a step in the right direction towards simpler compliance. The tax certainty adds to the confidence of any foreign investor and revenue administration across the globe aims to bring in clarity in policy and administration.

The budget outlines establishment of the alternative disputes resolution mechanism and safe harbour rules in transfer pricing matters, a significant move reassuring foreign investors. In addition, setting up a single authority for advance ruling to cover indirect tax references will undoubtedly enhance India's stature in international fora.

India is moving up towards market-oriented pension reform, including setting up the New Pension Regulatory Authority of India. Recognising the need to provide tax stimulus to implement and carry on with reforms, equity dividend earnings of the authority have been made free of dividend distribution tax and all its transactions in shares and securities are proposed to be exempted from the securities transaction tax.

Environmental protection is given importance through the inclusion of the same as an object of general public utility eligible for appropriate relief applicable to charitable organisations. Quoting Kautilya's Arthashastra, the finance minister kindled the hope that under the new direct tax code, tax collection would be like a bee collecting nectar from flowers. Let the king not subject the subjects to tax! They contribute to building bridges!