On August 21st, 2024, on occasion of 165th year of Income Tax Finance Minister Nirmala Sitharaman announced that the much-awaited Direct Tax Code (DTC) would soon be introduced, a move that aligns with the Budget 2024 declaration to overhaul the Income Tax Act of 1961 within six months. This significant development marks a transformative step in India’s taxation system, aiming to simplify, modernize, and align it with global standards.
Already in Budget 2024 major changes were made in various provision of Income Tax Act, get idea from below video:
Official Links of Direct Tax Code:
Why the Income Tax Act of 1961 Needs a Revamp
The Income Tax Act of 1961 has been the bedrock of India’s taxation system for over six decades. However, the complexity of the Act, coupled with numerous amendments over the years, has made it cumbersome and difficult to navigate. The review is essential for several reasons:
- Simplicity: The Act has become overly complicated, leading to a lack of clarity for taxpayers.
- Reducing Litigation: The complexity often leads to disputes and lengthy legal battles.
- Global Alignment: A modern tax code will bring India closer to global best practices.
- Ease of Compliance: A simplified tax system will make it easier for taxpayers to comply, reducing the burden on both individuals and businesses.
Evolution of the Direct Tax Code
The idea of a Direct Tax Code is not new. The Government of India has been working on this initiative for over a decade. Here’s a timeline of key events:
- 2009: The first draft of the DTC was proposed to replace the Income Tax Act.
- 2010: A revised discussion paper was released, and the Direct Tax Code Bill, 2010, was introduced in the Lok Sabha.
- 2013: The DTC underwent further revisions, incorporating feedback from stakeholders.
- 2017: A six-member task force was set up to draft a new Direct Tax Law.
- 2024: The announcement of the Direct Tax Code’s imminent introduction by Finance Minister Nirmala Sitharaman.
- 2025 : Coming up Direct Tax code with Budget 2025
What is the Direct Tax Code (DTC)?
The Direct Tax Code is a proposed legislation aimed at replacing the Income Tax Act, 1961. The DTC is designed to streamline the tax system, making it more user-friendly and efficient. Here’s how the DTC differs from the Income Tax Act of 1961:
| Point of Comparison | Income Tax Act, 1961 | Direct Tax Code (DTC) |
|---|---|---|
| Simplification | Proviso and Explanation in every sections | No proviso and explanations (easy to understand Language) |
| Residential Status | Resident, Non-Resident, Not Ordinarily Resident | Resident, Non-Resident |
| Assessment Year and Financial Year | Uses both Previous Year and Assessment Year | Only Financial Year |
| Taxation on Distributed Income | Certain income from LIC and Mutual Funds is exempt | Taxable at 5% |
| Long-Term Capital Gains | Exempt for listed shares | Taxable as part of normal income with indexation benefit |
| Taxation of Dividends | Subject to Dividend Distribution Tax at 15% | Taxed at 15% without DDT |
| Assessee Definition | Taxpayer liable for proceeding under the Act | Includes those voluntarily filing tax returns |
| Tax Rate for Ultra-Rich (Income > ₹10 Cr) | 30% + Surcharge 15% | 35% |
| Conducting Tax Audits | Conducted only by Chartered Accountants | Can be conducted by CAs, CSs, and Cost Accountants |
- Change Limits according to the latest scenario
- Widen Tax Base
- Change in TDS and TCS structure (Less TDS/TCS rates but on more types of Income)
- Widen Marginal Relief
- EEE Benefits to investments
- No Deductions Concept, focus on New Tax Regime only
- No cascading effect
- Simplified other Tax Rates
The Future of Indian Taxation
The introduction of the Direct Tax Code is expected to bring several benefits:
- Clarity and Transparency: The DTC will simplify the tax laws, making them more understandable for the average taxpayer.
- Reduced Litigation: By eliminating ambiguities, the DTC aims to reduce the number of tax disputes.
- Modernization: The DTC will incorporate global best practices, aligning India’s tax system with international standards.
- Economic Growth: A streamlined tax system is expected to improve compliance, increase revenue, and support economic growth.
The transition from the Income Tax Act, 1961 to the Direct Tax Code marks a significant shift in India’s taxation landscape. The DTC aims to create a more efficient, transparent, and taxpayer-friendly environment, ensuring that India’s tax system is prepared for the future.
The upcoming Direct Tax Code represents a bold step towards modernizing India’s tax system. While the Income Tax Act of 1961 has served the country for decades, the introduction of the DTC is expected to address its shortcomings, simplify the tax process, and align it with contemporary needs. As we await the final draft, it is clear that this transition will be crucial in shaping the future of taxation in India.
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can company sectratary now be authorise to conduct tax audit????
IN DTC bill there are meaning of account is only a CA. But you said they will be CS and CMA also please clarify.
nowhere in the direct tax code, 2010 draft bill it is mentioned that tax audit could be carried out by cost accountants and company secretaries then why have you made this claim
very good explanations in brief. would request you to please clarify followings-
Will old tax regime totally abolish or option to choose will be given.
In LTCG ( on Equity) rebate u/s 112A will be abolished (.Up to rs 1.25 lakh- no tax and beyond this 12.5% tax)
tax on LIC etc will medimclaim lic be taxed, What about Pradhan mantri vaya yojna for sr.ctzn etc( PMVVY)- how it will be treated.?
thanks