A new direct tax code to make compliance easier for taxpayers

A new direct tax code to make compliance easier for taxpayers

A new direct tax code is being drafted by the government to make compliance easier for taxpayers


The new direct tax code

The government has widened the range of a new direct tax code that is on the drawing board for making compliance much simple for the taxpayers, while transactions by businesses as well as individuals would be analyzed more intensively by using technology.

A panel which is drafting the tax code was given four more areas to work on, by the finance ministry. One such work is faceless assessment and scrutiny of income tax returns which eliminates the possibility of the assessee and the tax official concerned ever getting to know one another. Anonymity in processing an individual’s return aided through technology is intended at eliminating the possibility of corruption.

The newly added terms of reference consist of recommendation towards bringing in faceless and anonymized verification, scrutiny as well as assessments, lessening of litigation and expeditious disposal of appeals from Commissioner of Income-tax (Appeals) stage right up to Supreme Court, sharing of data amid different verticals like Goods and Service Tax, Customs, CBDT teams etc. The other two areas of consideration consist of simplification of the process to lessen compliance burden on income tax assesses and system based cross verification of financial transactions.

The expansion of terms of reference toward areas like faceless assessments, exchange of information with other revenue departments, lessening of litigation, etc., indicates that the tax department focus is to expand the tax base and simultaneously make a non-adversarial tax regime for individuals.

Task Force of Central Board of Direct Taxes

The task force directed by the member of the central board of direct taxes (CBDT) has additionally been assigned to incorporate in the tax code provisions for decreasing litigation and reducing the time taken for deciding on petitions by the department’s officials as well as various courts, which includes High Courts and the Supreme Court.

Provisions for goods and services tax (GST) in the new direct tax code

As per the order issued by the ministry, it was stated that the new code would also have provisions for goods and services tax (GST) authorities, customs officials, and the financial intelligence unit for sharing information. This would make certain that sales that get reported in the GST system cannot be hidden through the seller in his income tax returns. As GST is a value-added tax system in which transactions among buyers and sellers have to be matched for tax rebate purposes, it is virtually not possible for transactions to remain outside the GST chain.

The ministry has also asked the panel towards working on cross-verification of transactions by the department’s IT systems.

The move is to make income tax compliance less complicated by reducing red tape suggests that the direct tax reform is high on the plan of the Modi government, which switched a complex web of central and state indirect taxes with a national sales tax the GST, in its previous term. The GST rolled out in 2017 which has been one of the achievements of the Modi government however it has been disruptive in view of technology problems and the backlash from small businesses and traders, a major support base of political parties, which includes the Bharatiya Janata Party (BJP).  

The government now needs the direct and indirect wings of taxation to work closely with each different to check tax evasion.

The second term of Modi government focusing on the new direct tax code

The National Democratic Alliance (NDA) government, in its second time period, has proposed a new direct tax code that would replace the Income Tax Act of 1961. The existing direct tax law which manages with personal income tax, corporate tax as well as other levies, for example, the capital gains tax has gone through several changes over the years. The government now intends to rewrite it inconsistent with the economic requirements of the country and for keeping pace with evolving global best practices. One main consideration in this exercise is to improve tax compliance.

Click here to know more about "The new changes in the Income Tax Return Forms"


The task force working on the new direct tax code can recommend the rationalization of a few income-tax provisions concerning the individual taxpayers towards increasing transparency as well as accountability. However, if this report is submitted timely, it can be expected that few of the recommendations of the task forces shall be executed through the amendments in the existing Income-Tax Act.


eStartIndia Team

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