The debate around the direct tax code has gained attention as discussions continue about simplifying India’s tax structure. While the Income Tax Act, 1961 currently governs direct taxation, the proposed Direct Tax Code (DTC) aims to replace it with a more streamlined and modern framework. Understanding the difference helps taxpayers prepare for possible changes.

What Is the Income Tax Act, 1961?

The Income Tax Act, 1961 is the existing law that regulates income tax in India. It defines taxable income, exemptions, deductions, compliance procedures, penalties, and tax rates.

Under the new tax regime effective from FY 2026–27:

  • Up to Rs. 4 lakh – Nil

  • Rs. 4–8 lakh – 5%

  • Rs. 8–12 lakh – 10%

  • Rs. 12–16 lakh – 15%

  • Rs. 16–20 lakh – 20%

  • Rs. 20–24 lakh – 25%

  • Above Rs. 24 lakh – 30%

The Act also includes provisions such as TDS, TCS, capital gains taxation, and various deductions under different sections.

What Is the Direct Tax Code?

The direct tax code is a proposed legislation intended to simplify and modernise India’s direct tax laws. The goal is to reduce complexity, remove outdated provisions, improve clarity, and minimise litigation.

Unlike the Income Tax Act, which has been amended multiple times since 1961, the DTC aims to consolidate provisions into a clearer structure with simpler language and improved compliance mechanisms.

Key Differences for Taxpayers

If implemented, the Direct Tax Code may:

  • Simplify definitions of income and deductions

  • Reduce ambiguity in tax interpretation

  • Streamline compliance and filing procedures

  • Possibly restructure exemptions and deductions

However, until officially enacted, the Income Tax Act remains fully applicable.

Conclusion

At present, taxpayers must follow the Income Tax Act, 1961 and the current tax slabs under the new regime. The direct tax code represents a reform initiative focused on simplification and transparency. Until it is formally introduced and notified, no changes apply in practice, and existing tax rates and provisions continue to govern taxation in India.