Direct Tax Code (DTC) 2025

The main reasons for the introduction of the Direct Tax Code are mentioned below:

1. To clarify tax laws so that legal disputes can be reduced.

1. For tax regulations to be followed easily.

1. The number of taxpayers can be increased to 7.5% from 1%.

1. To ensure tax rules are simple to understand.

Timeline of Direct Tax Code

The timeline of DTC is mentioned below:

1. 2009: Proposal of the initial draft to replace Income Tax Act, 1961.

1. 2010: The Direct Tax Bill was introduced in the Lok Sabha.

1. 2013: After receiving feedback from several stakeholders, the Direct Tax Code was revised.

1. 2017: For the Direct Tax Law to be drafted, a task force consisting of six members was formed.

1. 2024: An announcement was made by the Finance Minister Nirmala Sitharaman stating that the Direct Tax Code will be implemented soon.

1. 2025: Along with the Budget 2025, the DTC will likely be implemented.

What are the Changes in Direct Tax Code 2025?

Some of the main changes that will come into effect with the introduction of DTC 2025 are mentioned below:

1. Exemptions and Deductions: In order to streamline the tax filing process, many exemptions and deductions will be removed.

1. Standard Deduction: For salaried employees, the standard deduction under the new tax regime has been increased by 50% to Rs.75,000.

1. Tax Collected at Sources (TCS) and Tax Deducted at Source (TDS): For most income types, TCS and TDS will be applicable. The main aim is to ensure that tax is paid on a regular basis. The new TDS rates are mentioned below:
   1. Most Payments: 2% from 5%
   2.   E-Commerce Operators: 0.1% from 1%

1. Unified Company Tax Rates: The tax rate will be the same for foreign and domestic companies. This will make the compliance process easier and will encourage foreign investments.

1. Expanded Tax Audit Roles: Tax audits can be conducted by Cost and Management Accountants (CMA) and Company Secretaries (CS). Earlier, tax audits could be conducted by only Chartered Accountants (CAs).

1. Income Category Names: The new category names are mentioned below:
   1. Income from Salary to Employment Income
   2. Income from Other Sources to Income from Residuary Sources

1. Residential Status: Resident but Not Ordinary Resident (RNOR) will be removed and taxpayers will either fall under non-residents or residents.

1. Capital Gains: Capital Gains will fall under regular income. The new rates are mentioned below:
   1. Long-Terms Gains: 12.5% from 20%
   2. Short-Term Gains: 20% from 15%

1. Financial Year: When filing tax returns only Financial Year will be applicable. Previous Year and Assessment Year will be removed.

What are the Differences between Income Tax Act, 1961 and Direct Tax Code?

The main differences between Income Tax Act, 1961 and DTC are mentioned in the table below: