According to The Economic Times report, in addition to Budget 2025, a bill proposing a new direct tax law is also on the agenda of the Parliament. The new bill is modelled after the Direct Tax Code. The new proposed direct tax law is supposed to simplify the compliance of income tax laws and rules.
ET Wealth spoke to tax experts and chartered accountants to know whether Budget 2025 will bring the Direct Tax Code to replace the Income Tax Act. Here is what they have to say:
Sandeep Jhunjhunwala, M&A, Tax Partner at Nangia Andersen LLP, says: “The Finance Minister’s announcement in Budget 2024 about overhauling the Income Tax Act represents a significant step toward streamlining and modernizing India’s income tax framework. A Committee has been formed to review the Income Tax Act, and it has requested additional time to carry out a thorough evaluation, underscoring its commitment to ensuring that the revamp is both comprehensive and carefully considered. Hence, any major announcement in Budget 2025 on this front, is not plausible. A well-structured simplification could modernise and simplify India’s income tax framework, addressing complexities in the current law, while aligning with global best practices. The Government may use Budget 2025 to unveil a roadmap for phased implementation, rather than announcing an immediate and comprehensive overhaul. Provisions targeting reduction in tax rates, rationalising exemptions and simplifying compliances could be introduced as initial steps in the upcoming budget. While the simplification measure offers an opportunity for significant reform, its success depends on balancing public expectations, stakeholder preparedness, and political considerations. A gradual approach may be the practical strategy, ensuring a seamless transition and sustained confidence in the tax system.”
Riaz Thingna, Partner, Grant Thornton Bharat, a tax consulting firm, says: “The revenue secretary, in a post-budget (2024) interaction, clarified that there is no intention to create a new direct tax code; only a comprehensive review of the existing Income-tax Act is contemplated. In a follow-up action, 22 specialised sub-committees have been constituted and the mandated task for these committees is to ensure the removal of redundant provisions and simplification of the Act, aimed at reducing litigation and compliances, widening the tax base, following global best practices. The government has also solicited inputs and suggestions from various stakeholders in October (2024) and 6,500 suggestions were received in a months’ time.
From all indications therefore, it is unlikely that the comprehensive review will be completed before one year from now. However, while the full review along with concomitant changes in related rules, forms, systems, etc. may not be completed in time to be introduced in the upcoming Budget, it is possible that few of the suggestions may be incorporated in the budget proposals.”
Punit Shah, Partner, Dhruva Advisors, a tax consulting firm, says: “The new direct tax code intends to bring substantial simplification, rationalisation in the tax provisions and measures to reduce tax litigation. The finance ministry has started the consultation process with various bodies and consulting firms to invite suggestions and recommendations on these aspects. The next step would then be for the ministry to formulate the new draft law. This draft law would then be published for public comments and then finalised based on the comments and suggestions received. The entire process can take several months or even years before the new direct tax code can be finalised and enacted. So, it looks difficult that it can be introduced in the coming budget.”
Abhishek Soni, CEO, Tax2win.in – an ITR filing website, says: “The enactment and implementation of the new Direct Tax Code (DTC) is a time-intensive process that may take several months. The Ministry of Finance has already begun gathering suggestions through the Income Tax website portal. Inputs from various bodies and consulting firms will also be considered to achieve the intended objectives of the DTC. After evaluating these suggestions and conducting thorough research, the Committee will draft the proposed law and release it for public comments. Given the complexity and length of time of this process, it is highly unlikely that the DTC will be introduced in the upcoming budget.”
Anand Bathiya, Chartered Accountant and President of Bombay Chartered Accountants’ Society (BCAS), says: “Whilst one can always speculate on whether the simplification-focused changes will be introduced in 2025 Budget or not, it is highly recommended that such high-impact change initiatives are not implemented in haste sans a due process of exposure draft and public consultations. Given the statement by the finance minister in the last budget, it may be possible that the first stage of changes is initiated through the budget, only to be carried forward with more changes over the coming quarters.”
What is the Direct Tax Code?
The Direct Tax Code was initially introduced to the public for their comments in August 2009 . The aim of the Direct Tax Code was to simplify direct taxation, adopt the best international practices, reduce the cost of compliance and replace the existing Income Tax Act. The recommendations of the Direct Tax Code were made on three areas – a) rationalise tax rates with the corresponding increase in the tax base, minimise tax exemptions, b) remove ambiguity in the income tax rules to stop tax avoidance and reduce the cost of compliance through the massive introduction of technology and c) checking erosion of tax base through tax evasion.
Though the government has put the Direct Tax Code on the back burner however, changes made in the existing Income Tax Act are somewhat similar to the recommendations made in the draft of the initial Direct Tax Code. The government has introduced a new tax regime which has minimal tax exemptions and lower tax rates as compared to the old tax regime.
Similarly, the introduction of the Annual Information Statement (AIS) helped both the tax department and taxpayers to report all incomes and avoid underreporting of income and tax evasion. The introduction of TDS on almost all incomes and mandatory income tax return filing even if total income is below the basic exemption limit in specified cases has ensured widening of tax base. This can be seen from the increase in the direct tax collection over the years.
