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Direct Tax Code 2025 vs Income Tax Act 1961: Key Differences & Changes Explained

By Mohammed S Chokhawala

Updated on: Feb 13th, 2025

3 min read

The direct tax code (DTC) will be aimed at simplifying and modernising the existing direct tax law i.e. the Income-tax Act, 1961. The DTC will also be in-line with the global standards making the taxation simpler for both residents and non-resident taxpayers. In this article, we will explain in detail the expectations and differences between the DTC and the Income-tax Act.

Budget 2025 Update
Post budget, the bill has been approved by the cabinet. The bill is now likely to be presented in the parliament within the ongoing parliamentary session. (On or After 13th of February)
It is said that the new Income Tax Bill, if implemented, will reduce the contents of the act by nearly half.
The new bill 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 2025?

The Direct Tax Code aims to simplify, streamline, and standardise the existing complex income tax laws for everyone. The government intends to increase the number of taxpayers contributing to the income tax and hence wants to simplify the tax laws for the enhancing their participation. The primary goal is to make the compliance easier for all the taxpayers.

Why Direct Tax Code is Replacing Income Tax Act?

The purpose of introducing the Direct Tax Code (DTC) is to simplify and streamline tax laws, as the income tax act has become complex due to numerous amendments over time. The DTC will aim at enhancing transparency and make tax compliance easier for both individuals and businesses. Additionally, it will also focus on simplifying the process of calculating and filing income tax returns, ensuring it is straightforward and user-friendly.

Key Difference Between Income Tax Act and Direct Tax Code

The key differences between the Income Tax Act v/s Direct Tax Code are as follows:

Point of Comparison	Direct Tax Code (DTC)	Income Tax Act (ITA) 1961
Residential Status	Only Resident and Non-Resident	Includes Resident, Non-Resident, and Resident but Not Ordinarily Resident
Assessment Year Concept	Only the Financial Year prevails	Uses both Financial Year and Assessment Year
Tax on Income from LIC	Taxable at 5%	Exempt
Tax on Income from Mutual Funds	Taxable at 5%	Exempt
Tax Audit Conducted By	Can be conducted by Chartered Accountants, Company Secretaries, and Cost Management Accountants	Can be conducted only by Chartered Accountants
Dividends Taxation	Taxable at 15%	Taxed at the slab rates
Income Tax Rate for High Earners	Taxable at 35%	30% + surcharge (10%, 15%, 25% & 37%)
Capital Gains Treatment	Same taxation rules apply to all the assets	Different assets are taxed differently
Deductions and Exemptions	Reduced deductions and exemptions	Numerous deductions and exemptions available
Compliance Focus	Enhanced digital compliance processes	Traditional compliance methods are still prevalent
Tax Regime for Individuals	Only one regime is available for taxpayers	The taxpayers can choose between two regimes i.e new tax regime and old tax regime

Conclusion

Taxpayers are eagerly anticipating the introduction of the Direct Tax Code (DTC), hoping for positive reforms that will ease their compliance burden. Its implementation is expected to bring about significant changes to the taxation landscape, potentially boosting the economy.

Frequently Asked Questions

Is the Direct Tax Code the same as the Income Tax Act?

No, the Direct Tax Code (DTC) is not the same as the Income Tax Act. The DTC is a proposed reform aimed at simplifying and modernizing India’s tax system, replacing the complex and outdated provisions of the Income Tax Act.

Why is the Direct Tax Code being introduced?

By simplifying tax regulations and making them more transparent, the government hopes to encourage more people to contribute to taxes, aiding economic growth.

When is DTC expected to be introduced?

The Direct Tax Code (DTC) is expected to be introduced during the Budget 2025 session, which is scheduled for February 1, 2025.

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About the Author

Mohammed S Chokhawala

Content Writer

I'm a chartered accountant, well-versed in the ins and outs of income tax, GST, and keeping the books balanced. Numbers are my thing, I can sift through financial statements and tax codes with the best of them. But there's another side to me – a side that thrives on words, not figures. Read more

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