Direct Tax Code Vs Income Tax Act | New #DirectTaxCode Explained!

Summary

The video discusses the upcoming changes to India's Income Tax Act with the introduction of the Direct Tax Code in 2025. The speaker highlights various points of concern, including the removal of exemptions and deductions, increased taxes on capital gains, and the imposition of a flat 35% tax for higher-income groups. The impact on the stock market, the possibility of removing the Securities Transaction Tax (STT), and the introduction of TDS/TCS on all types of income are also discussed. The video encourages viewers to prepare for these changes, which could significantly affect their finances, and urges them to share the information.

Takeaways

• 😀 The Direct Tax Code (DTC) is expected to replace the Income Tax Act of 1961 by 2025, bringing major tax reforms.
• 😀 The highest income tax slab, currently at 30%, is likely to increase to 35% under the new DTC.
• 😀 Exemptions and deductions, such as those for life insurance and health insurance, will be eliminated under the new tax code.
• 😀 LIC payouts, which are currently tax-exempt, will likely be taxed at 5% under the new DTC.
• 😀 Capital gains might be taxed as normal income, leading to a tax rate as high as 35%, which could negatively impact the stock market.
• 😀 The removal of Securities Transaction Tax (STT) could have a positive effect on the stock market, but the impact will depend on other changes.
• 😀 TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) will likely be applied to almost all types of income under the new tax code.
• 😀 Tax audits may be conducted by professionals like Company Secretaries (CS) and Cost Management Accountants (CMA), expanding opportunities for these professionals.
• 😀 Political parties and politicians will remain exempt from taxes on donations, raising concerns about the fairness of the tax system.
• 😀 The Direct Tax Code is expected to be implemented by 2025, with a formal announcement likely in the 2025 budget on February 1st.

Q & A

What is the Direct Tax Code (DTC) and why is it being introduced?

The Direct Tax Code (DTC) is a proposed new law that will replace the current Income Tax Act of 1961. It is being introduced to simplify the tax system, remove exemptions and deductions, and implement a more streamlined process for tax collection.

How will the new Direct Tax Code affect income tax slabs?

Under the new DTC, the highest income tax slab will increase from 30% to 35%. This change will impact high-income earners, raising their tax burden.

What are the main differences between the old Income Tax Act and the new Direct Tax Code regarding exemptions and deductions?

The new Direct Tax Code will eliminate exemptions and deductions that were available under the old Income Tax Act. For example, expenses such as life and health insurance premiums will no longer be deducted from taxable income.

How will the Direct Tax Code affect Life Insurance Corporation (LIC) payouts?

Currently, LIC payouts are tax-exempt under the Income Tax Act. However, under the new Direct Tax Code, a 5% tax will be imposed on the maturity proceeds of LIC policies, even for amounts as high as 1 crore rupees.

What is the impact of the Direct Tax Code on capital gains tax?

The DTC proposes to tax capital gains as normal income, which could subject capital gains to the highest tax rate of 35%. This could have a negative impact on the stock market, as investors might face higher tax liabilities.

Will the Securities Transaction Tax (STT) be affected by the Direct Tax Code?

Yes, the Direct Tax Code includes discussions about removing the Securities Transaction Tax (STT), which could potentially benefit the stock market by reducing transaction costs. However, this change could be offset by the higher tax rates on capital gains.

What are TDS and TCS, and how will they be impacted by the Direct Tax Code?

TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) will be applicable on almost every type of income under the new Direct Tax Code. This means that tax will be deducted or collected upfront for various types of income, increasing compliance requirements.

How will tax filing and audits change under the new Direct Tax Code?

Under the Direct Tax Code, tax filings will become more complex, and tax audits will be expanded to include not just Chartered Accountants (CAs), but also Company Secretaries (CSs) and Cost Management Accountants (CMAs). This will broaden the scope for professionals to conduct audits.

What are the potential effects of the Direct Tax Code on the stock market?

The introduction of the Direct Tax Code could have mixed effects on the stock market. Higher taxes on capital gains, if implemented, could discourage investment, while the removal of STT could have a positive effect by reducing trading costs. The final impact will depend on how these changes are balanced.

Why are political parties exempt from paying taxes on contributions under both the current and proposed tax systems?

Political parties in India are exempt from paying taxes on donations they receive, both under the current Income Tax Act and the proposed Direct Tax Code. This exemption applies to both the receipt and use of these funds, as political parties and politicians are not subject to these taxes, despite their role in making the laws.