12 Nov

DIRECT TAX CODE 2025: DRAFT PDF | PROPOSED CHANGES | IMPLEMENTATION DATE

DIRECT TAX CODE 2025: DRAFT PDF | PROPOSED CHANGES | IMPLEMENTATION DATE 

 

Why the new Direct Tax Code needed

The Direct Tax Code has been in development for over a decade, starting with an initial draft in 2009 and a first proposal in 2010. Due to various delays, its implementation has been on hold, but the government will now move forward with it. The DTC 2025 will aim to address the complexity of the Income Tax Act 1961, which has become increasingly burdensome with its extensive sections, exemptions, and deductions. By introducing the Direct Tax Code 2025, the government will seek to make tax compliance simpler and more transparent.

The Goals of the Direct Tax Code 2025

The DTC 2025 will set out several key objectives, the primary one being to expand the taxpayer base. Currently, only around 1% of India’s population pays income tax. With the DTC 2025, the government will work to increase this to 7.5%, which will improve revenue collection and reduce the tax burden on compliant taxpayers.

Major Changes in the Direct Tax Code 2025: What CA Students Will Need to Know

The DTC 2025 will introduce several important changes that you should become familiar with. Here’s a breakdown of what are the expected changes and how it will impact tax filing and compliance:

  1. Simplified Residential Status:

The DTC 2025 will classify taxpayers as either residents or non-residents, removing the “Resident but Not Ordinarily Resident” (RNOR) category for easier understanding.

 

  1. Elimination of Assessment Year and Previous Year Concepts                                      Under the new system, taxpayers will only refer to the Financial Year (FY) when filing, removing the confusing “Assessment Year (AY)” and “Previous Year (PY)” concepts.

 

  1. Changes to Capital Gains Taxation

                    
Capital gains will be taxed as part of normal income, which could increase tax rates on capital gains depending on an individual’s tax bracket.

 

  1. Updated Income Category Definitions


While the five heads of income will remain, terms will be modernized; for example, “Income from Salary” will become “Employment Income,” and “Income from Other Sources” will be known as “Income from Residuary Sources.”

 

  1. Unified Tax Rates for Companies


The DTC 2025 will establish a single tax rate for both domestic and foreign companies, making corporate tax compliance easier for multinationals.

  1. Reduction in Deductions and Exemptions

Most current deductions and exemptions will be removed to simplify the filing process and reduce tax loopholes.

  1. Expanded Tax Audit Scope

With DTC 2025, CS and CMA professionals will be permitted to conduct tax audits, a responsibility that is currently exclusive to Chartered Accountants (CAs).

  1. Broader Application of TDS and TCS

The new tax system will require Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) on nearly all forms of income to ensure regular contributions throughout the year.

  1. More Streamlined Tax Structure


The DTC 2025 will simplify the structure of the Income Tax Act, consolidating the current 298 sections into 319 sections with expanded schedules, providing a more organized framework.

  1. Tax Exemptions for Political Parties


While the DTC 2025 will seek to expand revenue collection, it will continue to exempt political parties from taxation—a point that may spark discussions among taxpayers.

How the Direct Tax Code 2025 Will Impact CA, CS, and CMA Exams

With the DTC 2025 coming into effect, many CA, CS, and CMA students are wondering how it will impact their exam syllabus. Here’s what you need to know:

  • For Exams Before March 2026: The Income Tax Act of 1961 will still apply, so students can continue focusing on the current syllabus without concern.

 

  • For Exams Starting April 2026: The Direct Tax Code 2025 will apply, so the new tax code will be part of the curriculum from that point on.

This timeline gives CA students the clarity they need to prepare effectively. For those planning to take exams before April 2026, there’s no immediate change, allowing focus on the existing tax law. After that, the DTC 2025 will take center stage.

Conclusion

The Direct Tax Code 2025 will bring significant changes to India’s tax system, impacting compliance and expanding the taxpayer base. For CA students, especially those preparing for the CA Inter and CA Final exams, understanding the DTC 2025’s key features will provide an edge in both exam readiness and practical knowledge. Focus on these updates now to stay ahead of the curve and excel in the evolving field of Indian taxation.

 

Popular Blogs