Direct Tax Code 2025: Draft PDF, Implementation Date, Key Changes, Tax Slabs & Expectations

Direct Tax Code aims at simplifying tax compliances for everyone. It serves as a means to eliminate the current complexities and ambiguities in the existing Income Tax Act. Through simplification of compliances, the government intends to enhance the revenue and minimize the hassle of assessments and pending cases. The new Income Tax Bill was recently introduced by the Finance Minister in the parliament, which is expected to be discussed in parliament in July and August. 

What is the Direct Tax Code or New Income Tax Bill?

•  A code is a law that consolidates, simplifies and a structured version of an act.
• Whenever a code is introduced by the law makers, the intent is to consolidate the vast spread sections, which is complex and confusing.
• The Direct Tax Code intends to simplify, streamline, and standardize the current complex Income Tax Laws for all. 
• It is said that the new Income Tax Bill, if implemented, will reduce the number of sections by 30%.
• It is expected to simplify the existing Income Tax act drastically.
• There will not be any changes in the slab rates proposed in Budget 2025.

Why is the Direct Tax Code being Introduced?

• According to the data shared by the government in 2023, only 2% of the population in India are income taxpayers .
• It is strikingly low in comparison to the developed economies.
• The simplified version of the Direct Tax Code can help in making the tax laws equitable, and transparent.
• An improved taxpayer base can be conducive to the economic growth of India.

What are the Proposed Changes in Direct Tax Code or New Income Tax Bill?

As the code aims to simplify the taxes for all, it is expected to bring in various reforms. Let’s have a look:

Concept of Tax Year

• Usually, people outside the tax domain are confused between the financial year and the assessment year. Therefore, the concept of tax year is used in the new bill.
• Tax year refers to the period from 1st April to 31st March of the year. It is pretty similar to the financial year concept
• Wherever the term ‘assessment year’ is used in the existing act, it is referred as ‘subsequent tax year’ in the new bill. 

Simplified Tax Structure

• The new bill has 536 sections, as compared to more than 700 sections in the existing act.
• Redundant provisions are removed.
• Wherever necessary, the sections are better presented, in a consolidated manner, and they are placed sequentially for easy reference.

Inclusion of Digital Assets and Transactions

• Since the digital transactions has increased significantly in the recent times, there are various sections where digital transactions and digital assets are specifically considered for tax purposes. 

Benefits of Direct Tax Code

• Reduced Complexity: The DTC simplifies the tax structure by minimizing the number of deductions and exemptions available to taxpayer.
• Increased Compliance: By streamlining tax laws and reducing legal ambiguities, the DTC encourages voluntary compliance among taxpayers.
• Unified Tax Rates: The DTC proposes rationalized tax rates that align with global standards, making India more attractive for both domestic and foreign businesses.
• Minimized Legal Disputes: The simplification of tax laws is expected to significantly reduce litigation burdens for individuals and businesses.
• Elimination of Redundancy:  There are a few places in the Income Tax Act wherein the same tax incidence is being dealt with by more than one section. This redundancy is expected to be removed in the new code.

When will the Direct Tax Code Implemented?

• As per the latest information available, the New Income Tax Bill or Direct Tax Code is expected to be discussed in the monsoon session of the parliament in July and August, 2025. 
• The implementation might be from FY 2026-27.
• The government is following a collaborative approach to revamp the code creating tax processes simpler like never before.

Conclusion

The introduction of the Direct Tax Code is a right move to gradually replace the complex laws and redundant sections in the Income Tax Act, 1961 to make it more equitable, easy to understand and fair for all the taxpayers in India. Also, the transition to the new tax code will involve careful management at different levels, but it is going to outweigh all the problems in the long run.