Direct Tax Reform with NDA Government Ahead?

If the Narendra Modi government gets re-elected, official sources stated that the long-delayed Direct Taxes Code (DTC) will be implemented as soon as possible. They also mentioned that the finance ministry has already started talking about this. The sources, who asked to remain anonymous, stated that the prime minister’s orders led to the inclusion of the law-making process in the Modi 3.0 government’s agenda.

According to the sources, the goal of the measure is to bring direct tax legislation closer to international standards and simplify them even further. The revision would be based on the draft that a task team created in 2019.

Among the main ideas under discussion are a reform of the capital gains tax system and the elimination of various annoyances in the application of the tax deducted at source.

The UPA administration was the one that first suggested DTC; a draft Bill was presented in August 2009 and it was introduced in Parliament in 2010. Following the Standing Committee’s examination, the Bill underwent two revisions in 2012 and 2014 before expiring with the dissolution of the 15th Lok Sabha. The Modi 1.0 and 2.0 administrations have implemented several measures aimed at promoting compliance, decreasing exemptions, and lowering tax rates. One such measure was the September 2019 reduction of the corporate income tax rate to 22%, which brought the effective tax rate closer to that of Southeast Asian nations as well as the US and the UK. Nonetheless, there are still a number of unfinished reforms, such as those pertaining to capital gains taxation and the streamlining of tax law provisions.