The announcement of the New Income Tax Bill for Budget 2025 marks a major shift in India’s taxation system. As revealed by Union Finance Minister Nirmala Sitharaman, the government is set to introduce a new income tax legislation in the upcoming week in the parliament. The bill is poised to simplify the tax code significantly and reduce legal complexities. The initiative stems from the overall complex laws, with many sections, deductions and exemptions making it all the more challenging to understand for the taxpayers in India. In this article, we will discuss the key expectations from the new Income Tax Bill.

Recent Update

• Post budget, the bill has been approved by the cabinet. The bill is now likely to be presented in the parliament on 10th February .
• It is said that the new Income Tax Bill, if implemented, will reduce the number of sections by 30%.
• The code is expected to simplify the existing Income Tax act drastically.
• There will not be any changes in the slab rates proposed in Budget 2025.

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. 

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 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
• A simplified tax structure for all sorts of residents is required so that people can understand the residential status 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.

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. 

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.

Investor Concerns Regarding the Implementation of DTC

The investors are concerned about the following due to the implementation of DTC:

• The changes in capital gains taxation
• The higher tax rate on mutual funds or financial securities

When will the Direct Tax Code Implemented?

• As per the latest information available, the new tax code has received approval from the Cabinet and  is expected to be presented in the parliament on 10-02-2025. 
• The implementation might be from FY 2025-26.
• 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.