MUSCAT: The new bill is expected to simplify tax compliance, reduce litigation, and scrap the financial year (FY) and accounting year (AY) system.
The much-anticipated legislation is set to replace the Income Tax Act, 1961, which currently spans 23 chapters and 298 sections. The overhaul aims to cut down legal complexities, reduce paperwork, and introduce uniform tax structures.
Key Changes in the Direct Tax Code
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Simplified compliance: Easier tax calculations and return filing for individuals.
FY-AY system scrapped: A move to eliminate confusion in tax assessments.
New taxation on LIC policies: A 5% tax may be introduced on income from LIC policies, which was previously untaxed.
Tax audits broadened: Company secretaries and cost management accountants may now conduct tax audits, previously restricted to chartered accountants.
Dividend tax standardization: Taxes on dividends, currently applied at varying slab rates, may be fixed at 15%.
High-income tax cap: A uniform 35% tax rate may replace the existing variable surcharge on top earners.
Capital gains taxation: Possible standardization of capital gains tax across asset classes.
Fewer exemptions: The DTC is expected to reduce deductions and exemptions, aligning more with the new tax regime.
The proposed reforms come after a thorough review by the Central Board of Direct Taxes (CBDT), which formed 22 specialized sub-committees to evaluate different aspects of the law. Additionally, the government sought public feedback, receiving over 7,000 suggestions from stakeholders and experts.
Speculation about the bill gained momentum after Sitharaman’s July 2024 budget speech, where she hinted at a major revamp to simplify tax laws and reduce the page count of the I-T Act by 60%.
Sources indicate that the DTC may be tabled in Parliament this session, marking a significant shift in India’s tax landscape. If passed, it could streamline compliance and modernize tax administration in a way not seen in decades.
