Direct Tax Code (DTC)

• The Direct Tax Code (DTC) is a proposed replacement for the Income Tax Act, 1961.
• Its primary goal is to simplify, modernise, and streamline India’s direct tax laws, making them easier to understand and comply with.
• The idea is to:
  • Reduce complexity caused by numerous amendments over decades
  • Encourage higher tax compliance by making filing simpler
  • Cut the current Act’s length by up to 60%

• Here’s how the DTC is expected to differ:
•  Simpler Structure
  • The Income Tax Act, 1961 has 23 chapters and 298 sections, making it long and complex.
  • DTC aims to drastically reduce sections and chapters.
• Removal of FY/AY Concept
  • Under the current law, taxpayers deal with Financial Year (FY) and Assessment Year (AY).
  • DTC may scrap these definitions to avoid confusion.
• New Taxation on Some Incomes
  • LIC policy income, which was tax-free under the 1961 Act, may now be taxed at 5%.
• Broader Tax Audit Eligibility
  • Currently, only Chartered Accountants can conduct tax audits.
  • Under DTC, Company Secretaries and Cost Accountants may also be allowed.
• Standardised Tax Rates
• Taxes on dividend income, which exists at slab rates, may be standardised at 15%.
• For high earners too, the tax rate may be standardised at 35% in place of the variable surcharge imposed in addition to the 30% tax slab.
• Uniform Capital Gains Tax
  • Different asset classes currently attract different tax treatment.
  • DTC may harmonise capital gains tax across asset types.
• Fewer Deductions & Exemptions
  • The DTC may limit exemptions and deductions to make taxation simpler.
• The DTC may not provide the option of choosing between two tax regimes.
• The DTC will focus on Digital Compliance.

DTC = Fewer sections + Simpler rules + More digitisation + Less scope for interpretation