The Direct Tax Code 2025 brings significant changes to simplify and modernize India's tax system. Here are the key highlights of this new tax structure and what it means for taxpayers:

• Simplified Tax Structure
  The Direct Tax Code 2025 aims to streamline India’s tax system, reducing the number of complex sections and instead using schedules to make tax filing easier. This change seeks to make the process more accessible for everyone, from individuals to businesses.

• Clearer Taxpayer Classification
  Under the new code, taxpayers are classified simply as residents or non-residents. Complex classifications such as ROR (Resident and Ordinarily Resident) and RNOR (Resident but Not Ordinarily Resident) are removed, making the system simpler to understand and navigate.
  
  

• Fewer Deductions and Exemptions
  Many current deductions and exemptions are being reduced or eliminated to close loopholes, making the tax system more transparent and equitable for all taxpayers.
  
  

• Broader Scope for TDS and TCS
  Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) will now apply to almost all forms of income. This expansion helps ensure timely tax payments, reducing the risk of evasion and increasing compliance.
  
  

• Unified Capital Gains Taxation
  Capital gains will now be taxed as regular income. Although this may mean higher taxes for some, it establishes a more uniform approach by treating all types of income equally.

Major Changes in Direct Tax Code 2025

The Direct Tax Code 2025 introduces several notable reforms designed to simplify tax filing, enhance transparency, and make compliance easier for all taxpayers. Here’s a breakdown of the major changes:

• Unified Tax Year Terminology
  The terms “Assessment Year” and “Previous Year” have been removed from the tax code, leaving only the term “Financial Year” for tax filing. This change aims to reduce confusion and standardize the language around tax periods.
  
  

• Revised Capital Gains Taxation
  Capital gains will now be taxed as regular income. Short-term gains on financial assets will see an increase in tax rate to 20% (up from 15%), while long-term gains will benefit from a reduced rate of 12.5% (down from 20%).
  
  

• Streamlined Residential Status
  Taxpayers are now categorized simply as residents or non-residents, eliminating the RNOR (Resident but Not Ordinarily Resident) category, making residential status easier to understand and apply.
  
  

• Renamed Income Categories
  Certain income types have been renamed for clarity. “Income from Salary” is now termed “Employment Income,” and “Income from Other Sources” is renamed “Income from Residuary Sources.”
  
  

• Expanded Tax Audit Roles
  In addition to Chartered Accountants (CAs), Company Secretaries (CS) and Cost and Management Accountants (CMAs) may now also be authorized to conduct tax audits. This change increases accessibility and allows more professionals to perform these audits.
  
  

• Standardized Company Tax Rates
  Domestic and foreign companies will now face a unified tax rate, simplifying compliance and potentially encouraging more foreign investment by leveling the playing field.
  
  

• Broader Application of TDS and TCS
  Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) will now apply to nearly all income types, ensuring more regular tax payments. The TDS rate for many transactions will decrease from 5% to 2%, while for e-commerce operators, the rate will drop significantly from 1% to 0.1%, providing compliance relief for businesses.
  
  

• Reduced Deductions and Exemptions
  The code removes most deductions and exemptions, simplifying the filing process. However, salaried employees under the new tax regime will see an increase in the standard deduction to ₹75,000—a 50% rise—offering additional relief.

These updates reflect a commitment to creating a clearer, more efficient tax system that benefits both taxpayers and the government.