Taxation and the Evolution of the New Taxation Code in India: A Comparative Analysis
Written by Bhaviya Singh
Taxation remains one of the most important sectors of governance, with a considerable impact on any country’s economic progress. In India, the taxation structure has undergone various revisions over the years, developing to meet the changing needs of the economy and society. One of the most significant recent developments is the implementation of the New Taxation Code, which aims to reduce the intricacies of the Indian tax code and ensure a more taxpayer-friendly approach. This article will look at the fundamental components of Indian taxation, the provisions of the new taxation legislation, and a comparison to the previous taxation structure.
I. Introduction to the Indian Taxation System
India’s taxation system is divided into two basic categories: direct taxes and indirect taxes. Direct taxes include income, corporation, and wealth taxes, whereas indirect taxes include goods and services tax (GST), customs duties, and excise duties, among others. Historically, India’s taxation framework was governed by legislation such as the Income Tax Act of 1961 and the Indirect Tax legislation (pre-GST), which have undergone numerous revisions and reforms. As the economic landscape changed, it became clear that the antiquated character of certain tax regulations caused complexities, inefficiencies, and a significant cost on taxpayers. The need for a simpler, transparent, and efficient taxation system was felt, leading to the introduction of the New Direct Tax Code (DTC) and reforms in the indirect tax system through GST.
II. Key Highlights of the New Taxation Code
- Simplification of Income Tax Slabs The new taxation code introduces simplified tax slabs, doing away with multiple deductions and exemptions. Taxpayers can now opt for lower tax rates without availing exemptions, providing flexibility.
- For instance, The new system exempts persons with an annual income of up to ₹7 lakh from paying tax due to an improved refund, whereas the previous regime needed complex computations with exemptions under sections like 80C and 80D.
- Reduction of Corporate Tax Rates The corporate tax rates have been significantly reduced under the new code. Startups and new domestic manufacturing companies benefit from lower tax rates, aimed at boosting industrial growth and attracting foreign investments.
- The new tax rate for domestic companies stands at 22% without claiming deductions or incentives, compared to the earlier rate of 30%.
- No Distinction Between Taxable Income and Exemptions One of the most noticeable changes in the new code is the elimination of various exemptions and deductions permitted under the previous regime. This measure is intended to simplify tax filing and prevent the overuse of exemptions.
- Deductions like house rent allowance (HRA), standard deduction, and others are not available in the new regime, unlike the old taxation system, where taxpayers could avail multiple deductions to reduce taxable income.
- Reduction of Litigation The new taxes legislation aims to reduce litigation by simplifying laws and tax rules. Under the previous regime, complex clauses frequently resulted in misinterpretations, conflicts, and lengthy tax litigation.
- Tax on Capital Gains Another notable difference is the treatment of capital gains. The new rule aims to harmonize the tax treatment of both long-term and short-term capital gains, resulting in a more transparent and sensible approach. The distinction between different asset classes for tax purposes has also been narrowed.[2]
III. Comparison Between the Old and New Taxation Systems
| Parameter | Old Taxation Regime | New Taxation Regime |
| Income Tax Slabs | Higher slabs with multiple exemptions | Lower slabs with limited or no exemptions |
| Corporate Tax | Higher corporate tax rates with multiple deductions | Reduced corporate tax rates with no deductions |
| Tax Exemptions | Wide range of exemptions, including 80C, HRA, 80D | Minimal exemptions, with most deductions removed |
| Litigation | Complex provisions leading to disputes | Simplified provisions aimed at reducing litigation |
| Capital Gains | Different treatment for various asset classes | Unified treatment with simpler rules |
| Filing Process | Complicated due to multiple deductions and rebates | Easier filing with no need to calculate exemptions |
IV. Rationale Behind the New Taxation Code
The New Taxation Code was implemented with the primary goal of simplifying the tax structure, increasing compliance, and improving the ease of doing business in India. By proposing reduced tax rates in exchange for reducing deductions, the government seeks to increase openness and prevent tax evasion.
The change to a non-exempt tax system reflects the government’s intention to expand the revenue base while retaining taxpayer-friendly measures. Furthermore, by decreasing corporation tax rates, India hopes to become a more appealing location for foreign investors, promoting economic growth.
V. Challenges and Criticisms of the New Taxation Code
Despite its virtues, the new taxes code has drawn criticism from a variety of sources. Some perceive the loss of exemptions as a deterrent to saving and investing, citing portions such as 80C that encouraged long-term financial planning. Furthermore, the corporate sector’s reliance on tax breaks and exemptions to increase profits is a source of dispute.
The dual tax regime, which allows taxpayers to choose between the old and new systems, has caused confusion, especially among individuals who are unsure whether system will be most favourable to them. While the new system simplifies taxation, it may not lessen the tax burden for everyone.
VI. Conclusion
The implementation of the New Taxation Code represents an important step in modernizing India’s tax structure. While it streamlines the structure and minimizes compliance burdens, its effectiveness will be determined by how well it balances taxpayer interests with the government’s income demands. While the code is progressive, it must address specific issues about savings incentives and the difficulties of a dual system. The future of India’s taxation policy depends on establishing a balance between simplicity and fairness. The shift from the old to the new taxation regime exemplifies India’s commitment to establishing a transparent and equitable taxation system that keeps tax policy current with the country’s fast changing economic and social landscape.
Reference
https://www.pnbmetlife.com/articles/taxation/evolution-of-taxation-system-in-india.html
https://law.uok.edu.in/Files/5ce6c765-c013-446c-b6ac-b9de496f8751/Custom/unit_1_of_income_tax.pdf
https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-1
