Srinagar, Feb 01 (KNS): Finance Minister Nirmala Sitharaman announced that a new Income Tax Bill, known as the Direct Tax Code (DTC), will be introduced next week to streamline tax compliance for individual taxpayers. The DTC aims to simplify the tax process, make it easier to understand, and reduce the volume of tax-related litigation. Sources indicate that the bill might be introduced during the current Parliament session.
The idea of a new direct tax code was first introduced when Sitharaman presented the 2024/25 Union Budget in July. At that time, she revealed that the aim was to simplify the existing Income Tax Act of 1961, with a target to reduce its length by 60%. The current Income Tax Act, with its 23 chapters and 298 sections, governs the imposition of direct taxes on personal and corporate income, securities transactions, gifts, and wealth.
In preparation for the overhaul, the Central Board of Direct Taxes (CBDT) formed an internal committee to oversee the review, which included 22 specialized sub-committees to evaluate various aspects of the law. Additionally, the government invited feedback from stakeholders and experts, with over 7,000 responses received by January.
Key Differences from the Income Tax Act
The new Direct Tax Code is expected to significantly simplify and shorten the complex Income Tax Act. The proposed changes include.
• Taxation of LIC Income: Income from Life Insurance Corporation (LIC) policies, previously tax-exempt, could be taxed at a 5% rate.
• Expansion of Tax Audits: While the current law limits tax audits to Chartered Accountants, the DTC may allow company secretaries and cost management accountants to perform audits.
• Standardization of Dividend Taxes: Tax rates on dividend income, currently subject to varying slab rates, may be fixed at 15%.
• Simplified Tax Rates for High Earners: The highest tax rate for high earners may be standardized at 35%, eliminating the additional surcharge on top of the existing 30% tax slab.
• Capital Gains Tax Reforms: The DTC may remove the differences in tax treatment for various asset classes.
• Reduction of Deductions and Exemptions: The new tax code is likely to limit or reduce the number of deductions and exemptions available, aligning with the simpler new regime.
These changes aim to make the tax system more transparent and efficient while reducing compliance burdens for taxpayers. (KNS)