New Delhi:
A new income tax bill – a direct tax code meant to simplify compliance for individual taxpayers – will be introduced next week, Finance Minister Nirmala Sitharaman said as she presented the Union Budget 2025. The new law, she said, would be “simple to understand” and also lead to lower tax litigation.
On Thursday sources told NDTV this new code might be introduced in this parliament session.
Talk of a new direct tax code emerged when Ms Sitharaman presented the full 2024/25 budget in July; then she had said the goal was to make current income tax laws simpler to read and understand, and reduce the number of pages of the I-T Act of 1961 by a staggering 60 per cent.
READ | Is There New, ‘Simpler’ Income Tax Act In Budget 2025?
The 1961 Act – which deals with imposition of direct taxes, i.e., personal and corporate tax, as well as those on securities transactions, gifts, and wealth – has 23 chapters and 298 sections.
Before Ms Sitharaman had announced the overhaul of the I-T Act, the CBDT, or Central Board of Direct Taxes set up an internal committee to oversee the review; this included establishing 22 specialised sub-committees to evaluate various aspects of the old law.
Also, in October the centre invited members of the public, including stakeholders and subject experts, to offer their views and recommendations. By January, some 7,000 were received.
How Is It Different From I-T Act?
The Direct Tax Code is aimed at simplifying the tax laws and reduce the page count as numerous amendments over the years have made the Income Tax Act, 1961 complicated. The 1961 law has 23 chapters and 298 sections. It is believed the DTC will bring a drastic cut to this.
READ | What Is Direct Tax Code? How It Is Different From I-T Act, 1961
The biggest change may be the scrapping of the concept of financial year (FY) and accounting year (AY), which often led to confusion. It may also introduce taxes, applicable at 5% rate, on income from LIC policies, which was not taxed under the 1961 law.
Under the 1961 law, tax audits could only be performed by Chartered Accountants, but the DTC may allow company secretaries and cost management accountants to handle this job.
Taxes on dividend income, which exists at slab rates, may be standardised at 15%. For high earners too, the tax rate may be standardised at 35% in place of the variable surcharge imposed in addition to the 30% tax slab.
For capital gains, differences in taxation on different asset classes may also be removed.
The DTC may not provide the option of choosing between two tax regimes. Deductions and exemptions too may be reduced – on the lines of the new regime.