Syllabus |
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Topics for Prelims |
The Direct Tax Code |
Topics for Mains |
The Indian Economy, Planning, Growth and Development, Government Policies and Interventions. |
The Direct Tax Code is the rule that seeks to replace the existing Income Tax Act. The Code covers all types of taxes, including corporate and personal income taxes. This Code aims to bring single legislation with simple tax laws and regulations. The Direct Tax Code replaced the Income-tax Act 1961 and other direct tax legislation like the Wealth Tax Act 1957.
The direct tax code is a topic relevant to the UPSC CSE context under General Studies Paper III. It is a basic topic for aspirants to understand the dynamic aspect of the direct tax code. The direct tax code is an essential topic for UPSC Civil Services because it highlights the key features of the direct tax code, which are frequently discussed in the exam. In this article, we shall study the direct tax code's background, purpose, and features. Join UPSC Coaching today to boost your preparation.
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The Direct Tax Code (DTC) is a proposed legislation aimed at replacing the existing Income Tax Act of 1961 in India. Its goal is to simplify, consolidate, and modernize direct tax laws, making them more transparent and efficient. The DTC seeks to reduce ambiguities, improve compliance, and minimize litigation. It also proposes uniform tax rates, clearer definitions, and a taxpayer-friendly structure, promoting ease of doing business and enhancing India’s overall tax administration.
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The Direct Tax Code (DTC) was introduced to simplify and consolidate India’s complex income tax laws into a single legislation. It aimed to make tax compliance easier and promote transparency and efficiency in the tax system. The Income Tax Act is complex and outdated to contemporary situations and developments. This created a necessity for a simpler Tax law in the country. The timeline of developments regarding the Direct Tax Code is as follows:
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The purpose of the Direct Tax Code is to simplify, rationalize, and modernize direct tax laws in India. It aims to ensure better compliance and reduce litigation. The Direct Tax Code seeks to replace the Income Tax Act. Thus, it looks to solve the challenges posed by the previous structure.
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The Direct Tax Code features include uniform tax rates, simpler tax structure, and clearer definitions to reduce ambiguity. It promotes transparency and aims to streamline tax administration. All the features of the Direct Tax Code focus on simplifying and consolidating various direct taxes.
There are many advantages of the Direct Tax Code, and they are as follows:
Simplification and consolidation of direct tax laws aim to merge various provisions into a single, clear code. This reduces complexity and improves taxpayer understanding and compliance. Simplification of Direct tax laws includes various steps to achieve the same.
Consolidation refers to the merging of various tax laws existing right now. Taxes are broadly classified as Direct Taxes and Indirect Taxes. The Direct Tax Code proposes to merge direct taxes like Income Tax Act 1961, the Gift Tax Act 1958, Wealth Tax Act 1957, etc.
The Committee on Direct Tax Code, formed by the Government of India, recommended simplifying tax laws, reducing litigation, and ensuring a taxpayer-friendly regime. It proposed clearer rules and lower tax rates. The task force recommendations have yet to be made public, but key takeaways can be taken from the report on the Direct Tax Code.
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The Indian government has already taken much-needed steps in the right direction. There is scope for more. Much is needed to be done with the IT Act, which is still complex and has dual interpretation issues, leading to litigation cases.
Direct Tax 2.0 needs to be implemented, which includes multiple key points:
General Anti Avoidance Rule or GAAR is a means provided under the direct tax system. It gives power to tax officials to restrict the tax benefit to any company, and by using GAAR, tax officials can suspend so
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There are two major guidelines issued in the GAAR implementation:
The Parthasarathi Shome Committee recommended deferring GAAR implementation and suggested safeguards to prevent its misuse. It emphasized clarity, investor confidence, and fair treatment of taxpayers.
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The Direct Tax Code has had a rough journey coming out as legislation. The government is moving from an outdated and complicated Income Tax Act towards a simplified and consolidated Direct Tax Code. The objectives and features of the code support the need for legislation that can broaden the country's tax base. The primary focus of the code should be to meet the country’s rising economic needs and to improve the tax base.
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After reading this article, we hope all your doubts about the "Direct Tax Code" have been addressed. The textbook provides comprehensive notes on civil services and various other competitive examinations. It has always ensured the quality of its products, such as content pages, live tests, GK and current affairs, mocks, and so on. Ace your UPSC preparation with the Testbook. Download the Testbook App now!
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