The Union Government is preparing the Union Budget 2025, which shall be presented on February 1, 2023, the Central Board of Direct Taxes (CBDT) is now working on the simplified version of income tax laws with the objective to reduce litigation and ease compliances.
The Direct Tax Code (DTC) 2025 will replace the Income Tax Act of 1961 bringing India streamlined and modernised tax systems that clarify regulations, widen income tax brackets, reduce deductions, and aim to increase compliance.
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Direct Tax Code (DTC) 2025 – Union Budget 2025
The new tax code will consolidate all direct tax laws under a single framework, eliminate outdated exemptions and deductions to broaden the tax base, introduce a dispute mediation mechanism, and expand audit roles beyond Chartered Accountants (CAs).
In the year 2009, the first draft of the DTC was proposed to replace the Income Tax Act.
In 2010, a revised discussion paper was released, leading to the introduction of the Direct Tax Code Bill in the Lok Sabha.
In 2013, the DTC was revised based on feedback from various stakeholders.
In 2017, a six-member task force was formed to draft a new Direct Tax Law.
In 2024, Finance Minister Nirmala Sitharaman announced that the DTC would be introduced soon.
In 2025, the DTC is expected to be implemented alongside the Budget for 2025.
Highlights of the Direct Tax Code Bill
- Widen Tax Slabs
The bill aims to widen the tax slabs for individuals. The individual with the income between Rs. 2 to Rs.. 5 lakh will be taxed at 10%, between Rs 5 and Rs 10 lakh at 20%, and over Rs 10 lakh at 30%.
- Reduce Litigation & Disposal of Appeal in time bound manner
Direct Tax Code aims to encourage unified tax rates for companies, and reduce litigation. Presently, approximately 3.60 Lakhs Appeal is pending at the first appellate stage.
- Simplify The Existing Tax System
With the primary aim to simplify and make taxation more transparent and understandable by anyone, whether it be a common man who has minimal or no knowledge of finance or a professional, the government has introduced the new Direct Tax Code.
Difference Between Direct Tax Code And Income Tax Act
| Income Tax Act, 1961 | Direct Tax Code 2025 | |
| Residential Status | Resident and Ordinarily Resident,Resident but Not Ordinarily Resident), NR (Non-Resident) | Resident and Non Resident |
| Tax Audit | Conducted by Chartered Accountant (CA) | Conducted by CA, CS, and CMA |
| Concept Terms | Both terms- ‘Previous Year’ and ‘Assessment Year’ are applicable | Only ‘Financial Year’ would be used |
| Taxation on Dividends | Divident Distribution Tax @ 15% | Taxed @ 15% without DDT |
| Tax on Distributed Income | Income from LIC, mutual fund, etc are exempted | Taxed @ 15% without DDT |
| Tax Rate for Income above 10 crore | 30% + surcharge @ 15% | Taxable @ 35% |
| Capital Gains | Capital Gains are taxable at a Special Rate | Capital Gains will become part of Normal Income |
| Heads of Income Names | Income from Salary, Income from Other Sources | Renamed as Employment Income, Income from Residuary Sources |
| Sections and Subsections | 298 Sections, several sub-sections, clauses, and sub-clauses, and 14 schedules | Remove all clauses and sub-clauses. Consists of only 319 sections and 22 schedules. |
