Introduction of the new simplified tax code
India’s current tax law was introduced way back in 1961, and it was largely modelled on a 1922 law.
The current tax legislation is a comprehensive piece of legislation that includes 298 sections across
23 chapters. Over the decades, this legislation has been tweaked repeatedly to address the changing
business paradigm, within the same overall construct that dates back almost a century. This has
resulted in a complex law that creates ambiguity and uncertainty in the tax law, resulting in increased
tax litigation.
To address this, the government is working towards a new direct tax code (DTC). This effort to
overhaul the income-tax law has been ongoing for several years. The journey began in 2009 when the
then finance minister proposed the concept of a DTC. A draft of the DTC was unveiled in August 2009
for public consultation, but it never saw the light of day.
In 2017, the Modi Government revived the DTC and constituted a task force to draft new direct tax
legislation. The task force submitted its report on direct tax reforms in 2019. This report was not
made public nor was it implemented. However, it is believed that some parts of the proposals were
incorporated in the law over the years through the annual budget-making process.
This journey now seems close to culmination. The Modi Government 3.0, in its first budget in July
2024, announced that a new law is to be unveiled in six months. Consistent with this announcement,
the finance minister again announced in her budget speech yesterday that a draft law is to be
introduced in the next few days.
The new DTC is expected to be clear and direct. The expanse of the law is also expected to be
significantly shorter with only half of the present tax legislation, in terms of both chapters and words.
It is proposed to be simple for taxpayers and administration to understand, leading to tax certainty
and reduced litigation.
If the government delivers on these expectations, it would be a bold reform measure to create a
simplified tax law with the potential to create a more transparent, efficient and business-friendly
environment.
We keenly await the draft law. It is also expected to be open for public consultation, and comments
may be considered before being legislated.
