One of the biggest announcements of Budget 2025 is the announcement by the finance minister that a New Direct Tax Code (DTC) 2025 bill will be announced early next week.
A complete overhaul of the Income-tax Act, 1961 is a bold step, but the real question is whether it will truly simplify compliance or just reorganise complexities
One of the biggest announcements of Budget 2025 is the announcement by the finance minister that a New Direct Tax Code (DTC) 2025 bill will be announced early next week.
It will be a new law and not an amendment to the existing act. The new law is to be brought into parliament in the second half of the budget session after it is vetted by the law ministry.
Says Divya Baweja, Partner, Deloitte India, “Over the past decade, several reforms have been implemented, including faceless assessments, faster returns to facilitate the taxpayers and bring in transparency in the entire income-tax process for the taxpayers. Continuing with this vision, the Honourable Finance Minister announced the introduction of a new Income Tax Bill next week. She also announced a proposal to decriminalize about 100 provisions in various laws which should bring cheer for everyone.
The idea is to send a strong message at a time when the income tax laws have faced strong criticism over complex tax laws. The public has also been complaining that the middle class has to pay a very high amount of tax.
Says Sandeep Chilana, Managing Partner, CCLaw, “A complete overhaul of the Income Tax Act is a bold step, but the real question is whether it will truly simplify compliance or just reorganize complexities.”
It remains to be seen whether the new law will reduce disputes and ease tax administration. Businesses and professionals will be watching this space closely to see how it handles aspects like retrospective taxation, complex exemptions, and litigation-heavy provisions.
“The success of this reform will depend on how effectively it balances these two- revenue needs of the Government with a taxpayer-friendly approach,” says Chilana.
Suresh Surana, a Mumbai-based chartered accountant, said that the new income tax bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. “It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation. This is a welcome move and would definitely boost trust and certainty for the taxpayers. This sets the context for a complete structural direct tax reform which has been partly unleashed by the changes in the personal tax rate slabs and rates as well as an increase in the rebate.”
In the past, there have been attempts made to introduce a new direct tax law. The new Direct Tax Code Bill was introduced in 2010 with the aim of overhauling the Income Tax Act 1961. But it did not take off as it wanted to do away with exemptions and also include foreign tax rules which were deemed complex. In 2017 the government set up a panel which was led by a Central Board of Direct Taxes (CBDT) member and a team of external experts who submitted a report to the FM. However, the report was never made public.
However, in the last budget, a further announcement was made to simplify tax laws, and an internal committee of officers was set up.
While a simplified language will make it easier for the public to understand, it could also lead to a source of litigation as the new language may need to be interpreted correctly in several cases.
Changes In The Tax Structure In The Last Few Years
In 2020, the government introduced a new tax regime with reduced tax rates, but without most of the deductions one gets under the new tax regime were done away with.
However, the new tax regime did not see much uptake and in Budget 2023, the new tax regime was made the default tax regime. Budget 2023 also introduced a standard deduction of Rs 50,000 in the new tax regime, which was hiked to Rs 75,000 in Budget 2024. It still remained Rs 50,000 under the old tax regime.
Also, one needs to remember that the 80C deduction was increased from Rs 1 to Rs 1.5 lakh in budget 2015, after which it has stayed the same. There have been expectations that the 80C deduction will be raised, but since the government has been moving towards a new tax regime, that was not on the cards.
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