Direct Tax Code 2025 vs Income Tax Act 1961: Key Differences & Changes Explained
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.
The Income Tax Act 2025
The Income Tax Act 2025 will be effective from 1st April 2026, replacing the decade old Income Tax Act, 1961. The Income Tax Act, 2025 will be applicable from FY 2026-27 onwards.
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.
When Will Direct Tax Code be effective?
The Direct Tax Code, 2025 now the Income Tax Act, 2025 will be effective from 1st April 2025. It will be applicable for FY 2026-27 onwards.
Key Difference Between Income Tax Act and Direct Tax Code
The key differences between the Direct Tax Code, 2025 and Income Tax Act, 1961 are as follows:
Point of Comparison | Direct Tax Code (DTC) | Income Tax Act (ITA) 1961 |
Only Resident and Non-Resident | Includes Resident, Non-Resident, and Resident but Not Ordinarily Resident | |
Only the Financial Year prevails | Uses both Financial Year and Assessment Year | |
Tax on Income from LIC | Taxable at 5% | Exempt |
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 |
Taxable at 15% | Taxed at the slab rates | |
Income Tax Rate for High Earners | Taxable at 35% | 30% + surcharge (10%, 15%, 25% & 37%) |
Same taxation rules apply to all the assets | Different assets are taxed differently | |
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.
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