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

With the Modi government back in power, Finance Minister Nirmala Sitharaman and team are all geared up to revamp and prioritise the long-awaited Direct tax code, taking a step forward to make the act simplified, concise, easy to read and understand. The initiative stems from the overall complex laws, with hundreds of sections, deductions and exemptions making it all the more challenging to understand for the taxpayers in India. 

In this article, let’s examine the key aspects of:

• The Direct Tax Code
•  Expectations from the Direct Tax Code
• What makes it crucial for taxpayers in India
• FAQs

What is the Direct Tax Code?

The Direct Tax Code intends to simplify, streamline, and standardize the current complex Income Tax Laws for all. Witnessing the percentage of people contributing to the Income Tax rising at a very slow pace, the government of India recognized the need to introduce a much more simpler version of tax laws and provisions in India. Its primary aim is to make tax compliance easy for the individuals and businesses.

Why is the Direct Tax Code being Introduced?

The biggest driving force behind simplifying the Direct Tax Code 2025 by the government is to increase the number of people contributing to taxes in India. According to the data shared by the government in 2023, only 2% of the population in India are income taxpayers which 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 and an improved taxpayer base can be conducive to the economic growth of India.

What are the Expectations of Taxpayers from the Direct Tax Code?

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

Simplified Residence Rule

The Income Tax Act has different tax implications for residents, residents but not ordinary, and non-residents, which creates confusion amongst taxpayers about the taxability of income earned. A simplified tax structure for all sorts of residents is required so that people can understand and pay taxes accordingly.

Financial Year vs Assessment Year

Usually, people outside the tax domain are confused between the financial year and the assessment year. The new code should just speak about one so that people gain a better understanding and it is easier for them to file ITR without worrying about the right or wrong financial year or assessment year.

Unified Tax Structure

The new code should bring parity between the tax rates applicable to the domestic and international companies, to avoid confusion and improving compliance for multinational businesses.

Simplified Tax Structure

As of now, the Income Tax Act has 298 sections followed by numerous sub-sections, clauses and schedules. The new code should try to simplify this structure which makes it easy to read, understand and decode.

Ease of Compliance

The new Direct Tax Code should be designed in a way that makes compliance way more simpler for both individuals and businesses operating in India. With different deadlines for filing income tax returns, TDS return, tax audit, transfer pricing etc, there are chances of missing the dates, leading to penalties. 

When will the Direct Tax Code Implemented?

As per the latest information available, the new tax code is under discussion and review with the relevant stakeholders and expected to be introduced in the Budget 2025. 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.