What is Direct tax code : Is it a good choice?



What is a direct tax?


The tax levying on the income of the persons, payable by the person only, is a direct tax. 

It’s a compulsory payment to be provided to the government by the person, which serves as the main source of revenue for the government for the welfare of the society.


Back in 2010, the bill was proposed in Parliament to implement the direct tax code, and the standing committee discussed the same, there was a possibility for the implementation goes the Direct tax code from the 1st April 2012, but due to delay in the submission of the reports, it was not possible.


Tries have been done for a long to replace the complicated, decades-old Income-tax Act, of 1961 with the newly designed DTC or Direct tax code to make the tax regime simpler and easier to understand. 

However, it's highly diplomatic talk that the new design would be accepted by the public and will it be successful in replacing such a big INCOME-TAX ACT, 1961.


Former Finance minister, P. Chidambaram ji said on Monday that the current Income-tax act must be replaced by the Direct tax code.

Direct tax code

What exactly Direct tax code is?


The Direct tax code is the newly designed tax law, which is aimed to replace Income-tax to make the law much simpler and easy to understand. 

The total income is bifurcated into 5 heads of Income namely: Salary head, House and property head, business and profession head, Capital gains, and other sources. The direct-tax code is expected to replace 5 heads with 2 heads only.


Why Direct tax code?


Although, there are several reasons for changing the existing Income-tax act, here are the two main reasons for the proposal of implementation of the Direct tax code-


1.    Complication: The Existing Income tax act is highly complicated with 298 Sections excluding the sections having suffix A, B, AA etc., which makes it more than 700, and filled with a decent amount of Subsections, clauses, and sub-clauses. The direct tax code is expected to make the system more efficient and simplified.

2.    Loopholes: It's believed that the Income-tax act is filled with a high amount of loopholes, using which, and the tax of crore is being evaded by many...


How Direct tax code is beneficial?


1. The key benefit of the Direct tax code is the non-complexity, which means, it can be understood by someone having a decent knowledge of law and tax. 

2. Citizens earning a total income up to 55 lacs are expected to get major tax relief'

3. The startups may get high incentives

4. Dividend distribution tax may be abolished

5. Minimum alteration tax is expected to be 20% which is 18.5% at present 

6. Tax slabs may be increased


When it can be implemented?


There is no date of implementation announced yet, but it may take a good time to check all the pros and cons of the implementation. 

The new Direct tax code must be diligently prepared and should cover all the persons who should pay taxes.


Is it a good choice?


The Implementation of the direct tax code may or may not be a good choice, depending on the actual implementation of the same. 

It would be a challenging task for the government, if they implement it, to replace a new design with well-established big law. 

The government may face a high loss of taxes during the implementation of the new Direct tax code, but the DTC would be easy to understand for the general public and other business houses.


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