Budget 2025: Will Govt replace Income Tax Act of 1961 with Direct Tax Code?
There is much excitement building up over the Union Budget 2025-26, to be presented on February 1, as the government may consider presenting the highly awaited Direct Tax Code (DTC) 2025. The new proposed law will replace the existing Income Tax Act, 1961 with streamlined tax regulations in a simplified way for the relief of taxpayers and compliance.
What is the Direct Tax Code?
As its name suggests, the Direct Tax Code looks towards a revamping of the old income tax codes. DTC is going to compress all these provisions perfectly with the ease of providing clarity
Presently, the Income Tax Act, 1961, has 298 sections diversified into 23 chapters dealing with personal income tax, corporate tax and securities transaction tax, amongst others. DTC is going to compress all these provisions perfectly with the ease of providing clarity.
Proposed Changes Under DTC
After the implementation of the Direct Tax Code, some major effects are going to be seen:
1. Easy Income Calculations
Complicated methods of income computation can be replaced by simple and direct formulas that will make the process less cumbersome for the taxpayers.
2. One Tax Year
Such words as AY and FY can be replaced with one term, the “tax year” to make things easier and avoid confusion.
3. Less Paperwork
The extra forms needed to file tax returns will be reduced and available online, which will make the filing process much easier.
4. Clearer Representation of Scenarios
Taxpayer scenarios may be represented in table formats, making the representation clearer, and taxpayers would understand their obligation better.
Changes after DTC implementation
The Income Tax Act, 1961, is difficult to understand and has many old and confusing rules that no longer make sense. DTC would be an effort to modernize the tax laws of India and align them with the international standards of taxation. The new framework would reduce litigation and legal ambiguity and thus benefit taxpayers, professionals, and the government alike.
In the previous Union Budget, steps to revamp the Income Tax Act were announced, and the Budget 2025 is expected to take these efforts forward by introducing major reforms in a phased manner. Experts, however, caution against rushing such important changes, emphasizing the importance of public consultations and the release of a draft version of the code for obtaining comments.
DTC will bring an easier and transparent tax system to taxpayers. Outdated and irrelevant sections will be eliminated, hard-to-compute formulas will be replaced with easier ones, and online access of forms will also help simplify tax filing. Financial year and assessment year will become a single tax year, thereby helping individuals and businesses understand much better.
The direct tax code that is proposed by the government has several changes incorporated in it to make the process of taxation streamlined and compliance enhanced. The effectiveness of these changes would, however depend upon the Budget announced next and onwards. While middle class is eagerly looking for relief in terms of tax, the implementation of the direct tax code might well become a huge step toward the reform of India’s taxation system.
