The upcoming Union Budget 2025 is expected to bring significant changes to the long-awaited implementation of the Direct Tax Code (DTC), signaling a major step towards overhauling India’s income tax system.
The Central Board of Direct Taxes (CBDT) has recently set up 22 specialized sub-committees comprising Income Tax officials to review and simplify various aspects of the existing tax laws.
In the Union Budget 2024-25, Finance Minister Nirmala Sitharaman highlighted the government’s commitment to simplifying direct taxation in India. “This will reduce the number of disputes and court proceedings, thereby providing tax certainty for taxpayers,” said the MFA.
These committees are tasked with ensuring that the proposed changes are consistent with global best practices, improve compliance for taxpayers, and improve government revenue efficiency. While the finer details of the reforms are under wraps, insiders believe the focus is on creating a more streamlined and fair tax system, addressing issues such as reducing litigation and broadening the tax base.
“We are working on simplifying the language. The act itself takes about 300-500 pages, where some sections are not important at all. These sections will be completely deleted,” the official said. Business today TV.
The Income Tax Department has received 6,500 suggestions from stakeholders in the last month to revise the Income Tax Act, 1961. According to the sources, mainly proposals were received to adjust the income tax rates, especially the corporate tax rate.
The industry’s key contribution was to create a single flat rate of corporate tax without splitting it into surcharges and levies, but the government is unlikely to announce a change to the tax in this budget, the official said.
A direct tax code has been a long-standing demand of economists and industry experts as Indian income tax laws have not undergone any major revisions since the enactment of the Income Tax Act, 1961. Over the years, partial amendments have led to more complexity and ambiguity. The DTC aims to replace the outdated structure with a modern consistent structure, streamline exemptions, rationalize tax rates and introduce measures to promote voluntary compliance.
The committees are expected to present their findings and recommendations in the next few weeks, ahead of the presentation of the Union Budget in February 2025. Experts are closely watching possible changes, such as adjustment of tax payments, simplified procedures for submission of documents and measures to resolve large litigation rates in tax cases.
The government’s proactive approach, coupled with Sitharaman’s assurances of stakeholder consultation, have raised expectations for a tax regime conducive to both economic growth and ease of doing business.
With just a few weeks to go before the Budget is announced, all eyes are on how the Finance Ministry implements this major reform that is set to transform India’s tax system for decades to come.
