Budget 2025: What changes are expected in terms of direct taxes? Here's what experts feel
The Direct Tax Code aims to simplify, streamline, and standardise the current complex Income Tax Laws for all, with the primary objective of making tax compliance more accessible for individuals and businesses.
- Dec 19, 2024,
- Updated Dec 19, 2024 3:34 PM IST
Direct taxes: The upcoming Union Budget 2025-26 in India is expected to bring about a new era of tax simplification, with the Finance Ministry focusing on comprehensive reforms to streamline the income tax system. After the re-election of the Narendra Modi-led government for the third time, Finance Minister Nirmala Sitharaman and her team are getting prepared to overhaul and prioritise the long-awaited Direct Tax Code, as a step towards simplifying the tax process. The Direct Tax Code aims to simplify, streamline, and standardise the current complex Income Tax Laws for all, with the primary objective of making tax compliance more accessible for individuals and businesses.
Here are the top expectations for Union Budget 2025:
According to ClearTax, here are the list of things that can be expected from FM Sitharaman and her team
> Simplified Residence Rule: The Income Tax Act presents different tax implications for residents, residents but not ordinary, and non-residents, leading to confusion among taxpayers regarding the taxability of their income. A more simplified tax structure for all types of residents is essential for better understanding and compliance.
Financial Year vs Assessment Year: Many individuals outside the tax realm often struggle to differentiate between the financial year and the assessment year. The new tax code should focus on clarifying this distinction to make it easier for people to file their Income Tax Returns without confusion.
Unified Tax Structure: It is imperative for the new tax code to establish uniformity in tax rates for both domestic and international companies to reduce confusion and enhance compliance for multinational corporations.
Streamlined Tax System: Currently, the Income Tax Act contains 298 sections, in addition to numerous sub-sections, clauses, and schedules. The upcoming tax code should aim to streamline this complex structure, making it more accessible and understandable.
Enhanced Compliance: The new Direct Tax Code should prioritize simplicity in compliance for individuals and businesses in India. With varying deadlines for filing income tax returns, TDS returns, tax audits, and transfer pricing, there is a risk of missing important dates and facing penalties.
Here's what Deloitte India said
TDS rates
> The current tax deduction/ collection rates vary from 0.1 percent to 10 percent, leading to frequent disputes due to inconsistencies among different regulations. To address this issue, the government could consider streamlining the rates into four main categories:
> For transactions involving the purchase of tangible goods: TDS at 1%, with no threshold limit > For transactions involving the provision of services: TDS at 2%, with no threshold limit > For transactions conducted through electronic platforms: TDS at 0.1% > For residual transactions like interest and dividends: TDS at 10%
By categorising the rates in this way, it would simplify the process and potentially reduce conflicts and confusion related to tax deductions/ collections at the source.
Share Transfer Transactions
In some cases, share transfer agreements may involve payment of the sale amount in installments, with one portion made at the time of the transaction and the rest upon fulfilment of certain conditions in the following year. This lack of clarity leaves the transferring shareholder uncertain about the future payment amount at the time of the sale.
It is unclear whether the contingent payment should be taxed in the year of the share transfer or in the year when the conditions are met in future years. To align with the tax regulations on compensation received from compulsory asset acquisition, it may be beneficial to establish guidelines for taxing contingent payments in the year they are received.
Direct taxes: The upcoming Union Budget 2025-26 in India is expected to bring about a new era of tax simplification, with the Finance Ministry focusing on comprehensive reforms to streamline the income tax system. After the re-election of the Narendra Modi-led government for the third time, Finance Minister Nirmala Sitharaman and her team are getting prepared to overhaul and prioritise the long-awaited Direct Tax Code, as a step towards simplifying the tax process. The Direct Tax Code aims to simplify, streamline, and standardise the current complex Income Tax Laws for all, with the primary objective of making tax compliance more accessible for individuals and businesses.
Here are the top expectations for Union Budget 2025:
According to ClearTax, here are the list of things that can be expected from FM Sitharaman and her team
> Simplified Residence Rule: The Income Tax Act presents different tax implications for residents, residents but not ordinary, and non-residents, leading to confusion among taxpayers regarding the taxability of their income. A more simplified tax structure for all types of residents is essential for better understanding and compliance.
Financial Year vs Assessment Year: Many individuals outside the tax realm often struggle to differentiate between the financial year and the assessment year. The new tax code should focus on clarifying this distinction to make it easier for people to file their Income Tax Returns without confusion.
Unified Tax Structure: It is imperative for the new tax code to establish uniformity in tax rates for both domestic and international companies to reduce confusion and enhance compliance for multinational corporations.
Streamlined Tax System: Currently, the Income Tax Act contains 298 sections, in addition to numerous sub-sections, clauses, and schedules. The upcoming tax code should aim to streamline this complex structure, making it more accessible and understandable.
Enhanced Compliance: The new Direct Tax Code should prioritize simplicity in compliance for individuals and businesses in India. With varying deadlines for filing income tax returns, TDS returns, tax audits, and transfer pricing, there is a risk of missing important dates and facing penalties.
Here's what Deloitte India said
TDS rates
> The current tax deduction/ collection rates vary from 0.1 percent to 10 percent, leading to frequent disputes due to inconsistencies among different regulations. To address this issue, the government could consider streamlining the rates into four main categories:
> For transactions involving the purchase of tangible goods: TDS at 1%, with no threshold limit > For transactions involving the provision of services: TDS at 2%, with no threshold limit > For transactions conducted through electronic platforms: TDS at 0.1% > For residual transactions like interest and dividends: TDS at 10%
By categorising the rates in this way, it would simplify the process and potentially reduce conflicts and confusion related to tax deductions/ collections at the source.
Share Transfer Transactions
In some cases, share transfer agreements may involve payment of the sale amount in installments, with one portion made at the time of the transaction and the rest upon fulfilment of certain conditions in the following year. This lack of clarity leaves the transferring shareholder uncertain about the future payment amount at the time of the sale.
It is unclear whether the contingent payment should be taxed in the year of the share transfer or in the year when the conditions are met in future years. To align with the tax regulations on compensation received from compulsory asset acquisition, it may be beneficial to establish guidelines for taxing contingent payments in the year they are received.