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The Direct Tax Code (DTC) was a proposed framework for replacing the Income-tax Act of 1961 and simplifying India's direct tax rules. Although the DTC was never enacted as a standalone law, its core intent has been included in the Income-Tax Act, 2025, which will officially replace the Income-Tax Act, 1961, on April 1, 2026. The new legislation aims to simplify, increase transparency, minimise litigation, and make compliance easier for people and corporations.
Key Takeaways
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The Income‑tax Act, 2025, received Parliamentary approval and presidential assent in August 2025 and is notified to commence from April 1, 2026.
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A simpler structure, clearer provisions, less litigation, and enhanced compliance methods are among the most significant innovations.
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The new framework seeks to harmonise India's direct taxation with current global standards.
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It aims for transparency, less litigation, and broader TDS/TCS without radical reforms.
Latest Updates
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No DTC branding: Referred to as "New Income Tax Act/Bill 2025" rather than "DTC".
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Stakeholder note: Taxpayers advised to prepare for procedural shifts; existing filings under the 1961 Act until March 31, 2026.
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Implementation preparation: CBDT is developing guidelines for TDS/advance tax following Budget 2026-27 (Feb 2026); revised ITR forms are due by Jan/Feb 2026; no rate adjustments have been disclosed.
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BCIC seminar context: The Bangalore Chamber of Industry and Commerce (BCIC) hosted a seminar on the Direct Tax Code 2025 with tax professionals and business representatives.
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Broader tax net impact: Terminology changes and expanded tax bases may increase tax obligations and create ambiguity for taxpayers.
What Is the Direct Tax Code?
The Direct Tax Code (DTC) is a proposed framework designed to simplify India's complex direct taxation system. The code aims to consolidate the existing income tax laws, enhance transparency and reduce compliance burdens.
The Income Tax Act of 1961 is the act that governs the direct taxation system in India. Since its introduction, the act has been amended regularly, time and again with changes and new additions. However, the regular updation has made the act voluminous, cumbersome and complex.
To address the inefficiencies and make the direct taxation system more streamlined, the government of India conceptualised the Direct Tax Code (DTC). The introduction of the DTC is expected to overhaul and simplify the existing tax structure. However, the framework is still in the pipeline and has gone through numerous drafts and revisions.
In this article, we will explore the DTC framework in detail and understand its benefits over the current system, including the key changes that it plans to introduce.
Also Read: What is Direct Tax?
Why Was Direct Tax Code Introduced?
The Direct Tax Code aimed not only to simplify but also to enhance the overall compliance of the Indian tax system. The Income Tax Act, 1961, has made frequent amendments over time and has made tax laws very complicated and challenging to know and follow.
The government wanted to make the tax system transparent, equitable, and modern, thus taking away the difficulty for people and businesses to comply with it. The whole idea was that if the tax structure was easy enough, people would voluntarily comply with it, and there would be no confusion for taxpayers at all.
Key drivers:
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Growing Tax Participation: The number of income tax returns submitted has consistently increased, with more than 9 crore ITRs filed in FY 2024-25, showing a growth of the tax base and compliance.
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Need for Simplification: Decades of revisions to the Income-tax Act of 1961 rendered the legislation difficult for taxpayers and administrators, causing the Income-Tax Act of 2025 to prioritise simplicity and clarity.
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Compliance Clarity: The new rule eliminates ambiguous phrases such as "previous year" and "assessment year" in favour of a single tax year, eliminating compliance uncertainty.
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Modernisation and Transparency: With 536 parts and a simplified structure, the Income-Tax Act of 2025 aims to make direct tax provisions more accessible and visible.
What are the Benefits of the Direct Tax Code?
Now that you are aware of what the Direct Tax Code is, let us look at the various benefits it is likely to bring about when introduced.
Simplification of Tax Laws
By consolidating multiple provisions under a unified framework and eliminating redundant laws, the Direct Tax Code would simplify the tax laws. The simplification is likely to make it easier for both individuals and businesses to understand the provisions and comply with the various requirements.
Enhanced Transparency and Compliance
Unlike the current Income Tax Act of 1961, the DTC aims to clearly define tax provisions to minimise ambiguities and increase transparency. The enhanced transparency in the direct tax system, combined with a reduction in taxe,s is expected to encourage voluntary compliance and reduce instances of tax evasion significantly.
Increased Economic Growth
A streamlined direct taxation system is the need of the hour for a developing country like India. Businesses, especially micro, small and medium-sized enterprises, are finding the current taxation system to be complex and burdensome.
The introduction of the Direct Tax Code is expected to reduce the compliance burden on businesses. This would, in turn, allow them to focus on growth and expansion. Furthermore, the DTC’s emphasis on reducing tax disputes and ensuring quicker resolutions is likely to further enhance the ease of doing business in India and promote economic growth in the long run.
Broaden the Tax Base
In addition to simplifying the tax framework and reducing compliance-related issues, the Direct Tax Code also aims to bring more individuals and entities under the tax net. By broadening the tax base, the framework can increase revenue collection without imposing excessive rates on existing taxpayers.
When will the Direct Tax Code be implemented?
According to the latest news, the Direct Tax Code (DTC) has been enacted as the Income Tax Act, 2025, which will come into force on April 1, 2026. This will mark a major shift in India’s direct tax framework for individuals, businesses, and tax authorities.
Major changes in Direct Tax Code
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Removal of assessment year and previous year concepts - The Act replaces the prior "previous year" and "assessment year" systems with a single Tax Year, which aligns income-generating and reporting periods for easier compliance.
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Detailed ITR Filings and Data Integration - Revised ITR forms will call for more detailed disclosures (e.g., HRA, house loan interest, and reconciled AIS/Form 26AS data), enabling exception-based analysis.
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Smoother Filing Experience and Faster Processing - Compliant taxpayers should expect more rapid return filing and faster refund and grievance processing thanks to pre-filled data and a restricted lawsuit scope.
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Taxpayer’s Charter - To improve transparency and justice in tax administration, the new law establishes a Taxpayer's Charter, which outlines taxpayer rights and duties.
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Consolidation of TDS Provisions - TDS provisions that were previously distributed throughout different portions of the old statute have now been combined into a single section to make reference and administration easier.
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Explicit Inclusion of Virtual Digital Assets (VDAs) - The Act specifies the position of virtual digital assets (including cryptocurrencies) as taxable assets, removing uncertainty about their tax status.
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TDS and TCS on Most Income - The proposal is to expand TDS/TCS coverage to additional income streams to improve tax collection and reduce evasion. It is being implemented gradually, and full details are pending official notification.
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Simplified Structure - The Income‑Tax Act, 2025, reduces sections, schedules, and sub-clauses while using simpler language and tables to improve clarity and compliance.
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Clarified Capital Gains Rules - While the tax rate remains same, the Act redefines and streamlines capital gains regulations, including simpler phrases and updated classifications.
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Detailed ITR Filing and Data Reconciliation - Revised ITR forms will demand more detailed disclosures (for example, HRA, house loan interest, and reconciled AIS/Form 26AS data), enhancing exception-based examination and decreasing mismatches.
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Encourage Migration to the New Tax Regime - The new legislation continues the aim of encouraging taxpayers to embrace the new tax regime, including features designed for simplicity of reference.
Also Read: Types of ITR Forms
Challenges and Criticisms
The Income‑Tax Act, 2025, derived from the earlier Direct Tax Code proposals, aims to simplify India’s tax system, but stakeholders have highlighted potential challenges regarding its execution and impact:
Implementation issues - Transitioning to the new law necessitates updates to tax administration infrastructure, retraining of employees, and familiarity with new IT systems. Experts warn that this may result in initial delays or confusion for taxpayers and authorities.
Complexity in transition - Changes in terminology, regulations, and filing processes may cause temporary issues during the transition from the Income-tax Act of 1961 to the 2025 framework.
Political and legislative hurdles - Prior discussions over exemptions, thresholds, and stakeholder interests all led to delays in implementation. Such debates highlight the difficulties of reaching an agreement on major tax reforms.
Economic considerations - Some experts have raised concerns that changes to capital gains and other rules could influence investment decisions. However, the government anticipates that simplicity and clarity will help to ensure compliance and long-term economic stability.
Conclusion
With this, you must now know what DTC is and the various benefits it is likely to offer to taxpayers. The Direct Tax Code is a major step in the right direction for a fast-developing economy like India. The proposed framework would simplify the existing direct taxation system and make it more efficient by eliminating shortcomings. However, it’s important to remember that this is a proposed framework. A revised version of the new Income Tax Bill will be presented in the parliament and it will incorporate the feedback from the parliamentary committee. Once passed, it will take effect from April 1st, 2026.
