New Income Tax Bill Next Week

A new income tax bill - a direct tax code (DTC) meant to simplify compliance for individual taxpayers - will be introduced next week, Finance Minister Nirmala Sitharaman said as she presented the Union Budget 2025. The new law, she said, would be "simple to understand" and also lead to lower tax litigation.

The Direct Tax Code is aimed at simplifying the tax laws and reducing the page count as numerous amendments over the years have made the Income Tax Act, 1961 complicated. The 1961 law has 23 chapters and 298 sections. It is believed the DTC will bring a drastic cut to this.

The biggest change may be the scrapping of the concept of financial year (FY) and accounting year (AY), which often led to confusion. It may also introduce taxes, applicable at 5% rate, on income from LIC policies, which was not taxed under the 1961 law.

Under the 1961 law, tax audits could only be performed by Chartered Accountants, but the DTC may allow company secretaries and cost management accountants to handle this job.

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.

For capital gains, differences in taxation on different asset classes may also be removed. The DTC may not provide the option of choosing between two tax regimes. Deductions and exemptions too may be reduced - on the lines of the new regime.