Twice in fifteen years the Indian state set out to replace the Income-tax Act 1961 with a modern direct tax code, and the two attempts ended in opposite ways. The Direct Taxes Code Bill, introduced in the Lok Sabha in August 2010 with a government majority behind it, a full committee examination ahead of it and a commencement date printed in its own text, was never put to a vote and died with the House that received it. The Income-tax Bill of February 2025, by contrast, was introduced, examined, withdrawn, reintroduced and enacted inside six months, and its text operates from 1 April 2026 as the Income-tax Act 2025. The puzzle is not why one government was stronger than the other, because the failed attempt also had its numbers. The puzzle is what the two drafts asked Parliament to approve, and the answer is the most transferable lesson in this cluster of articles: the first draft asked the House to approve a new text and a new tax policy in the same vote, while the second asked it to approve a new text and nothing else.

This article tells the story of the replacement that never happened and the replacement that did, and it argues a single claim throughout. The Direct Taxes Code failed because it bundled structural rewriting with substantive policy change, so that every constituency injured by any one proposal had a reason to fight the entire Bill, and the opposition of the parts accumulated faster than the government could settle them. The Income-tax Act 2025 succeeded because it unbundled the two tasks, promised in advance that rates, slabs, exemptions and the framework of liability would stay where they stood, and thereby left no injured constituency anything to organise against. That claim, stated here so the reader can test it against the record that follows, is a rule about legislative design in a system with many veto points, and it reaches well beyond taxation.

The statute both attempts set out to replace

The Income-tax Act 1961 was not born unusable, and neither attempt at replacement makes sense unless that is understood. As enacted, the Act contained 298 sections arranged in twenty-three chapters, a legible code for a far smaller economy, drafted when the number of assessees was counted in lakhs rather than crores and when cross-border commerce touched a small minority of taxpayers. What consumed that legibility was the maintenance mechanism the Constitution assigns to taxation. The Act is amended by the annual Finance Act, a Money Bill that must pass every year to raise the year’s revenue, and across six decades more than sixty Finance Acts and a series of Taxation Laws Amendment Acts carried several thousand individual changes into its text: new chapters inserted between old ones, provisos stacked on provisos, explanations appended to explanations, and whole special regimes for classes of transaction the original draftsmen never contemplated. By the time the replacement was finally enacted, the Finance Ministry’s own comparison counted 819 effective sections in forty-seven chapters and fourteen schedules, running to roughly 5.12 lakh words.

The full anatomy of that accumulation, provision by provision and decade by decade, belongs to the complete guide to the Income-tax Act 1961, which owns the statute itself; what this article needs from it is only the diagnosis on which both replacement attempts agreed. The diagnosis was never that the tax system raised the wrong amounts from the wrong people, though arguments about that ran in parallel. The diagnosis was that the text had become unusable as an instrument: practitioners navigated it through commentary and case law rather than through its own words, the department administered meanings that the bare sections no longer carried, and every Finance Bill debate reopened drafting questions because nobody could say with confidence what the consolidated law was. A statute can survive being unpopular. It struggles to survive being unreadable by the people charged with applying it, and by 2009 that judgment commanded assent across the political spectrum, which is why the case for a code was argued about means and never about whether.

The human scale of the maintenance problem grew with the economy the Act taxed. The assessee base that the draftsmen of 1961 served was drawn from a population in which income tax touched a small urban minority; the Act that their successors inherited in the twenty-first century governed the salaries of a vast formal workforce, the capital gains of tens of millions of investors, the cross-border structures of a trading economy integrated with the world, and a withholding apparatus that collected most of the tax before any assessment began. A code accumulates amendments in proportion to the transactions it must reach, and the Indian code was asked, across six decades, to reach transactions its authors could not have imagined: derivatives, electronic commerce, digital services, offshore funds and the income of the platform economy. Each arrival was legislated into the Act by the year’s Finance Bill, in the vocabulary of the year, by drafters answering to the year’s revenue targets, and the seams showed. The wonder, recorded by more than one committee, is not that the Act became difficult but that a system so maintained continued to collect the Union’s largest revenue with reasonable efficiency, which is a tribute to the profession that operated it and an indictment of the process that maintained it.

The Direct Taxes Code was also meant to absorb a second, smaller statute. The Wealth Tax Act 1957, which charged tax on net wealth above a threshold, had shrunk into a minor levy with a narrow base and a disproportionate compliance apparatus, and the Code project proposed from the beginning to consolidate the law of direct taxes into a single text, repealing both the 1961 Act and the wealth tax statute together. That scope mattered later, because a code that repeals two statutes and reprices the larger one is a bigger political object than a code that merely reprints one of them, and the Code’s troubles began at exactly the point where its ambitions were largest.

The commitment came in the Union Budget for 2009-10, when Finance Minister Pranab Mukherjee announced that a Direct Taxes Code would be placed in the public domain for discussion before being brought to Parliament. On 12 August 2009 the government released a draft Code together with a discussion paper inviting suggestions, and the document was candid about its method: to consolidate and amend the law relating to all direct taxes, to establish an economically efficient, effective and equitable direct tax system, to facilitate voluntary compliance, and to reduce the scope for disputes and litigation. Those stated purposes mixed the two tasks from the first page. Consolidation is a drafting exercise. An equitable and efficient system, pursued through redesigned slabs, a narrowed exemption structure and new anti-avoidance machinery, is a policy programme, and the draft pursued both at once with its rates and reliefs printed in full. The generosity of the 2009 draft made the point vividly: it proposed a basic exemption of Rs 2 lakh and a ten per cent rate running all the way to Rs 10 lakh of income, twenty per cent to Rs 25 lakh, and thirty per cent only above that, figures so far beyond the law then in force that the draft read, to many of its first readers, less like a consolidation than like a budget delivered by other means.

Making the Code: a draft published before a Bill

The Code was also an experiment in how a tax statute gets written, and the experiment’s design helps explain its fate, because the method maximised both the quality of the text and the time available for opposition to organise. Tax legislation in India is conventionally drafted in secret inside the Finance Ministry and revealed in the Budget, where the Money Bill procedure and the financial calendar carry it into law within weeks, with scrutiny compressed to the point of formality. The Code’s authors rejected that method for a text of this scale. The draft of August 2009 was published with a discussion paper that explained the reasoning chapter by chapter and invited the public to answer it. The revised discussion paper of June 2010 then did something rarer still: it replied. Theme by theme, it recorded the objections received, stated which had been accepted and which rejected, and printed the revised proposal beside the reasoning, so that a reader could watch the government’s mind change on savings taxation, on the minimum alternate tax base and on the slab structure in a single document. As an exercise in pre-legislative consultation it was ahead of Indian practice, and the professional response matched its seriousness, with the chartered accountants’ institute and the industry chambers producing detailed clause-level commentary of a quality that secret drafting never attracts.

The cost of the method was time, and time, for this Bill, was the opposition’s chief resource. From the draft of August 2009 to the Bill of August 2010 took a year, in which every affected interest could study its exposure, form its position and retain its advocates. From the Bill to the committee’s report took eighteen months more. Each stage of consultation was defensible, and several of them improved the text, but their cumulative effect was to ensure that by the time the Bill could have been debated, its contents had been public property for three years, its sweeteners had been partly distributed through intervening budgets, its costs had been itemised by the government’s own fiscal committee, and a general election was visible on the horizon. The contrast with the Finance Act method is stark and entirely general. A budget clause is drafted in private, revealed in February and law by April, and opposition to it must organise inside a single session against a moving timetable. A published code must survive years of organised scrutiny before it reaches a vote. The Code’s authors chose the more democratic method and were defeated by its arithmetic, and the authors of 2025, who published nothing until the Bill itself and finished in six months, had plainly read the record of that defeat as a manual.

There is a final feature of the making that belongs in any honest account, which is the identity of the makers. The Code was drafted within the revenue administration, by the department and the Central Board of Direct Taxes, under ministers who owned it politically, Pranab Mukherjee at its launch and P. Chidambaram at its redraft, two of the most experienced finance ministers of the era. The task force of 2017 was drawn from the same institutional world, with practitioners added. The 2025 text came from the same world again. The failure of the Code therefore cannot be laid at the door of drafting competence, ministerial inexperience or institutional ignorance, and accounts that reach for those explanations should be distrusted. The makers were as good as the Indian state produces. The design they were asked to execute, a policy revolution and a consolidation in one instrument, was the defect, and it is a defect that recurs precisely because it flatters the makers: a comprehensive code is the most prestigious object a tax administration can attempt, and prestige is a poor substitute for a passage strategy.

An idea older than the Bill

The Code of 2009 was presented as a rupture, and in form it was, but the ambition behind it had been accumulating for half a century, and the pre-history matters because it shows that the failure of 2010 was not a failure of diagnosis. The Income-tax Act 1961 was itself a replacement statute, enacted after the Law Commission and the Direct Taxes Administration Enquiry Committee under Mahavir Tyagi had reported in the late nineteen-fifties on the defects of the 1922 Act, and it was understood even then that a tax code decays in the keeping of its amenders. The Tax Reforms Committee chaired by Raja Chelliah, reporting in the early nineteen-nineties at the opening of the liberalisation era, recommended lower rates, a broader base, fewer exemptions and a statute an ordinary taxpayer could read, and the rate structure of the later nineteen-nineties was built substantially on its advice. The task forces on direct and indirect taxes chaired by Vijay Kelkar in 2002 carried the programme into administration, pressing for taxpayer services, simpler forms and the removal of the interface between citizen and officer as the organising ideas of reform. Through the two thousand, finance ministers of both governing coalitions spoke the language of a new code, and the taxation of savings at withdrawal, the exempt-exempt-taxed idea that would later detonate inside the Code, was debated and shelved in the budget politics of the middle of that decade after organised protest from savers.

Two conclusions follow from that lineage, and both cut against easy readings of 2010. The first is that nobody in the story was naive about the difficulty of what was proposed. The Code’s authors worked in a tradition that had been recommending exactly this consolidation for twenty years, and they had the 1961 precedent in front of them, a replacement that had succeeded when the economy was smaller, the tax base narrower and the amending habit not yet formed. The second is that the tradition had always separated, in practice, the two halves of its programme. Chelliah’s rates were enacted through budgets. Kelkar’s administrative reforms were enacted through schemes and Finance Acts. The rewriting of the statute as a single text was the half that every committee recommended and no government attempted, until 2009, when a finance minister decided to attempt both halves in the same document. The Direct Taxes Code is best understood as the moment the two halves of a twenty-year programme were finally bundled, which is why its failure cannot be written off as one government’s mishap. It was the programme’s own internal tension, deferred for two decades, arriving on the floor of the House at last.

The Direct Taxes Code Bill: a rewrite that also repriced

The path from the 2009 draft to a Bill took a year, and the retreats began before Parliament saw a clause. A revised discussion paper released on 15 June 2010 accepted a large volume of the objections the draft had provoked. The draft’s proposal to tax long-term savings at withdrawal, the exempt-exempt-taxed treatment that would have reached provident fund accumulations built up over a working life, was withdrawn for retirement savings, and the exempt-exempt-exempt treatment continued. The draft’s proposal to levy minimum alternate tax on the gross assets of companies, a charge that would have fallen on asset-heavy and loss-making enterprises alike, was abandoned in favour of the familiar base of book profits. The slab structure was trimmed back towards the existing law. Each retreat was defensible on its merits, and together they taught the first lesson of the episode before the Bill existed: a code that changes policy invites negotiation clause by clause, and the negotiation starts with the government’s own supporters and stakeholders long before it reaches the floor of the House.

When was the Direct Taxes Code Bill introduced in the Lok Sabha?

The Direct Taxes Code Bill 2010 was introduced in the Lok Sabha on 30 August 2010 by Finance Minister Pranab Mukherjee, after Cabinet approval, with commencement proposed from 1 April 2012. It was referred to the Standing Committee on Finance on 9 September 2010, and it never returned to the floor of the House for consideration and passing.

What the Bill of 2010 proposed, even after the retreats, was a substantial repricing of Indian direct taxation, and its contents deserve to be set out plainly because the political story is unintelligible without them. For individuals, the basic exemption rose from Rs 1.6 lakh to Rs 2 lakh, with Rs 2.5 lakh for senior citizens, and the rate bands widened: ten per cent on income between Rs 2 lakh and Rs 5 lakh, twenty per cent between Rs 5 lakh and Rs 10 lakh, and thirty per cent only above Rs 10 lakh. A much larger share of middle-income India would have paid materially less tax, and the revenue cost of that generosity ran through every subsequent discussion of the Bill like a fault line. For companies, the Bill proposed a single rate of thirty per cent for domestic and foreign companies alike, stripped of surcharge and cess, with a branch profits tax of fifteen per cent on the Indian branches of foreign companies, and minimum alternate tax raised to twenty per cent of book profits, creditable over fifteen years. The dividend distribution tax stayed at fifteen per cent. Wealth tax was folded into the Code with its threshold raised to Rs 1 crore and a charge of one per cent above it.

Around those headline numbers sat the structural proposals, and they were the ones that generated organised resistance. The Bill carried a general anti-avoidance rule empowering the revenue to disregard or recharacterise arrangements entered into for tax benefit, a controlled foreign corporation regime taxing the undistributed passive income of foreign companies controlled by Indian residents as if it had been distributed to them, and a residence test for companies keyed to where effective management sat rather than where incorporation had occurred. It proposed to replace profit-linked exemptions, the holidays that had directed investment by tax preference for four decades, with investment-linked deductions under which tax would fall due after capital was recouped. It restructured capital gains, removing the distinction between short-term and long-term gains for most assets other than listed securities. It protected existing special economic zone commitments by grandfathering, developers for zones notified by March 2012 and units beginning operations by March 2014, which is itself an admission that even a reforming code must purchase the consent of those who invested under the old one. Taken together, this was not a reprint of the Income-tax Act in cleaner type. It was a different settlement between the state and the taxpayer, wearing the clothes of a consolidation.

Two aspects of the Bill’s presentation compounded the difficulty. The first was that every proposal was severable in debate but inseparable in the vote: a member could not support the cleaner text while rejecting the savings treatment, because both arrived in the same clauses of the same Bill. The second was timing. The Bill promised commencement on 1 April 2012, eighteen months after introduction, for a text that rewired the obligations of every assessee in the country, and the timetable itself became an argument, because each constituency that needed more time to adjust acquired a reason to seek delay, and delay, for a Bill of this size in a House with a fixed life, is a form of defeat administered slowly.

A constituency of losers for every clause

The standard explanation of the Code’s failure is that it was controversial, which is true the way it is true that the sea is wet. The precise mechanism matters more. A pure recodification has no natural enemies: nobody’s liability changes when a section is renumbered, and a taxpayer who gains nothing from cleaner drafting also loses nothing by it. A policy Bill, by contrast, distributes gains and losses, and the losers of each measure are identifiable in advance, organised in advance, and able to state their objection in a single sentence. The Direct Taxes Code was drafted as a recodification and loaded as a policy Bill, and it therefore attracted the opposition of a policy Bill at full strength while claiming the easy passage of a drafting exercise. Almost every operative part of it created its own distinct opposition, and the oppositions did not overlap, which meant the government never faced one argument it could answer once. It faced a queue of them.

The savings proposals illustrate the queue at its most politically sensitive. The 2009 draft’s move to tax retirement savings at withdrawal struck at the provident fund and pension accumulations of salaried employees, the constituency least able to restructure its affairs and most able to make its displeasure felt through unions, service associations and the press. The retreat in the revised discussion paper settled that clause, but the episode established a template that repeated for four years: publish a bold proposal, absorb the reaction, withdraw or dilute, and continue with a slightly smaller Bill and a slightly larger stock of accumulated grievance. The minimum alternate tax proposal ran the same course on the corporate side. A charge on gross assets would have fallen on capital-intensive companies in their loss-making and gestation years, and industry bodies said so in terms that treated the proposal as a tax on investment itself; the retreat to book profits at twenty per cent ended that argument but left export-oriented and exemption-dependent companies to fight the higher rate and the narrowed exemption structure instead.

The international package created a third, quieter and more expert opposition. Controlled foreign corporation rules were orthodox in the tax systems of capital-exporting countries, and the residence test based on effective management had respectable international pedigree, but both proposals landed in a business community that read them through the prism of the era’s disputes between the revenue and foreign investors, and the draft’s original suggestion that neither treaty nor Code should enjoy automatic precedence, the later instrument prevailing in a conflict, alarmed exactly the investors whose long-term commitments the government was courting in other forums. Foreign capital did not need to defeat the Bill. It needed only to ensure that its clauses were examined slowly, and slow examination was the one resource the Bill could not spare.

What did the Kelkar Committee warn about the Direct Taxes Code in 2012?

The committee on fiscal consolidation chaired by Vijay Kelkar, reporting in September 2012, warned that enacting the Bill in its then form would produce large and continuing revenue losses, that the tax to GDP ratio was already low, and that in an active fiscal crisis there was no fiscal space for losses of that order. It advised a comprehensive review of the Bill before enactment.

The Kelkar warning deserves emphasis because it changed the character of the opposition. Until it arrived, the argument against the Code was distributional: this clause hurts savers, that clause hurts exporters, another hurts investors. The fiscal consolidation committee reframed the objection as one about the state’s solvency, arguing that the Bill’s widened bands and raised thresholds would surrender revenue on a continuing basis at a moment when the deficit was the government’s central anxiety. A finance ministry does not have to accept such a warning, but it cannot ignore it without cost, and the warning had a particular force because the committee had been appointed by the same government that owned the Bill. From the autumn of 2012, defending the Code required defending its revenue arithmetic against the government’s own fiscal advisers, and the energy that might have carried the Bill through the House was spent instead on whether it should be carried at all.

Underneath the individual objections lay a structural fact about how a bundled Bill dies. Each contested clause gave a different parliamentary constituency a reason to prefer delay, and Indian legislative time rewards delay: sessions are short, the legislative calendar is crowded, Money Bills and appropriations take precedence by constitutional design, and a long Bill referred to a committee returns to a floor agenda controlled by a government whose priorities rotate with events. A Bill that needs one majority on one day can survive this. A Bill that needs sustained priority across two or three sessions, while carrying a dozen live controversies each capable of consuming a debate, is hostage to every other demand on the government’s attention. The Direct Taxes Code needed that sustained priority and never received it, not because any single vote was in doubt, but because no week arrived in which forcing it through was the best use of the government’s stock of time and goodwill.

The fiscal weather the Bill had to sail in

No account of the failure is complete without the weather, because the Code was launched into the worst fiscal climate for a revenue-surrendering reform in a generation, and the climate was not an accident of the calendar but a condition its sponsors could read from the beginning. The draft Code of August 2009 appeared months after a general election fought in the shadow of a global financial crisis, with the deficit expanded by stimulus and the government’s fiscal consolidation commitments under the fiscal responsibility framework formally in abeyance. The Code’s arithmetic depended on a wager its authors stated openly: that lower rates on a broader base, with exemptions pruned and compliance improved by simplicity, would in time yield more revenue than the structure it replaced. Wagers of that kind are the standard economics of tax reform, and in calm conditions they can be carried on credibility. The conditions were not calm. Inflation ran near or in double digits through much of the Bill’s committee period, eroding exactly the thresholds the Bill proposed to fix and making its exemption limits look smaller with every quarter they sat unrevised, which is why the standing committee’s demand for a Rs 3 lakh limit indexed to prices had such force. The deficit, meanwhile, made every revenue estimate a hostage: a reform scored as losing revenue in its first years required a finance ministry to choose between its consolidation targets and its code, in public, with rating agencies and bond markets marking the choice.

The years then closed in. By 2013 the economy was contending with a wide current account deficit, a falling currency and the outflows that followed the first hints of tighter money in the United States, and the government’s fiscal energies were consumed by the defence of the deficit target it had set itself. A finance minister in that season does not introduce a Bill whose first-order effect, on the government’s own committee’s scoring, is to give revenue away in exchange for structural benefits a decade out. The Code’s sponsors were not defeated by an argument about drafting. They were defeated by the interaction of their Bill’s price with a fiscal cycle that turned hostile and stayed hostile for the whole of the Fifteenth Lok Sabha’s remaining life, and the interaction deserves its place in the causal account because it refines the bundling thesis rather than competing with it. Bundling determines how much political and fiscal capital a Bill must spend. The weather determines how much capital the government has. The Code needed the most at exactly the moment the treasury had the least, and the Act of 2025, needing almost none because it changed no liability, could be afforded in any weather at all, which is the final sense in which its modesty was its strategy.

There is an irony in the revenue debate that hindsight makes plain. The piecemeal path that replaced the Code delivered its revenue-relevant elements in the order of their popularity with the treasury rather than their coherence as a system: the anti-avoidance rule and the residence test, which protected revenue, arrived early and by extraction; the corporate rate cuts, which cost revenue, arrived late and gradually, as the fiscal position allowed and dressed as growth policy; and the personal slab generosity arrived as an optional regime whose cost the exchequer could meter by watching the migration of taxpayers into it. The budget process, whatever its defects as a drafting method, is an instrument for metering fiscal risk year by year, and a comprehensive code is a single unmetered commitment. The lesson generalises beyond revenue. Wherever a reform’s costs are front-loaded and its benefits deferred, the annual budget will outcompete the code as the vehicle, not because legislators prefer incoherence but because the budget lets them buy the reform in instalments and stop if the price rises. The Code asked for the whole price in advance, in a bad year, and the refusal it met was in that sense not a verdict on the reform but on the payment schedule.

The committee stage: examination without rescue

The Bill’s referral to the Standing Committee on Finance was the correct institutional step, and the committee performed its function with unusual distinction, which makes the sequel instructive: exemplary scrutiny did not save the Bill, because the Bill’s problem was not a shortage of scrutiny but a surplus of contested substance for scrutiny to work on. The committee was chaired by Yashwant Sinha, a former finance minister sitting on the opposition benches, and its examination of a government Bill under an opposition chairman gave its conclusions a cross-party weight that a friendlier committee could not have conferred. It took evidence from the revenue administration, from industry, from professional bodies and from the tax-paying public’s representatives, and it reported in the Forty-ninth Report of the committee, presented to the Speaker of the Lok Sabha on 9 March 2012.

The committee’s own proceedings mirrored the Bill’s difficulty in miniature. Its adoption of the report was deferred in February 2012 amid differences among members on the central questions, and it took three further sittings, on 17 and 24 February and 2 March, before the report was settled and presented, a timetable that records genuine contest inside a committee whose final product still carried the authority of a body chaired by the opposition’s most senior finance figure and speaking, in the end, with one voice. That combination, internal argument resolved into institutional unanimity, is what made the report so powerful and so awkward: the government could not dismiss it as partisan, because Yashwant Sinha’s committee was not a partisan instrument, and could not accept it, because its generosity collided with the fiscal consolidation the government’s own appointees were demanding in the same season. Committees in the Indian system report to the House and bind nobody, and ministers are within their rights to accept a recommendation or decline it with reasons. What a government cannot easily do is decline thirty or forty connected recommendations, each reasonable in itself, whose combined effect is a rival budget, without appearing to refuse relief its own Parliament has certified as due. The committee had done more than examine the Bill. It had repriced it upward, and left the government to explain the difference to the taxpayers who had read the headlines.

The report accepted the architecture of a code and then proceeded, recommendation by recommendation, to reopen the policy settlement the Bill embodied. On personal taxation it proposed that the exemption limit rise to Rs 3 lakh rather than the Bill’s Rs 2 lakh, that the ten per cent band run to Rs 10 lakh, the twenty per cent band to Rs 20 lakh, and the thirty per cent rate begin only above Rs 20 lakh, with the exemption limit linked to consumer price inflation so that it would adjust without repeated legislation. It proposed substantially larger deductions for savings, insurance and social security contributions than the Bill allowed. On wealth tax it proposed a threshold of Rs 5 crore against the Bill’s Rs 1 crore, with graduated rates rather than a flat one per cent. It counselled caution on the general anti-avoidance rule, urging safeguards so that the power to disregard arrangements would not become a general warrant for the assessing officer’s suspicion. On the corporate rate it left the Bill’s thirty per cent standing. The cumulative effect of the recommendations was to make the Bill more generous to the individual taxpayer at a revenue cost the committee did not have to fund, and thereby to relocate the argument: after March 2012 the political question was no longer whether the government’s Code was sound, but why the government was offering taxpayers less than Parliament’s own committee had recommended.

A government in that position has three options, none of them good. It can accept the recommendations and absorb a revenue loss its fiscal advisers have already warned against. It can reject them and defend a less generous settlement against a bipartisan committee chaired by a former finance minister, in an election cycle, on the subject of middle-class taxation. Or it can take the Bill back for comprehensive revision, which converts a parliamentary problem into a drafting problem and buys time at the price of momentum. The government chose revision, and the choice was rational, and it was also the moment the Bill’s fate was effectively settled, because a comprehensive revision of a text of that size is measured in years and the Fifteenth Lok Sabha had two years left to run.

The revision appeared as the Direct Taxes Code 2013, placed in the public domain for discussion on 1 April 2014 by Finance Minister P. Chidambaram, and it was never introduced in Parliament at all. Its dimensions record the scale of the renegotiation: 325 clauses in twenty-one chapters with twenty-three schedules, against the sprawling statute it was to replace. The government recorded that of the standing committee’s 190 recommendations, 153 had been accepted wholly or with modification. The redraft added a fourth slab, thirty-five per cent on individual incomes above Rs 10 crore, as a gesture to progressivity. It declined the committee’s Rs 3 lakh exemption precisely on the Kelkar ground, stating that the revenue loss, estimated at about Rs 60,000 crore, was unsupportable, and it declined to abolish the securities transaction tax. The document was competent, and it was also an epitaph: a revised Code published for public comment six weeks before a general election, by a government whose parliamentary term was expiring, addressed to a House that would never sit again. When the Fifteenth Lok Sabha was dissolved in May 2014, the Direct Taxes Code Bill 2010, which had stood referred and reported but never debated to a conclusion, lapsed with it, and the 2013 redraft lapsed with nothing at all, having never acquired the status of a Bill.

The debate the Bill never had

For a measure of this size, the parliamentary record is strikingly thin, and the thinness is itself evidence. The Bill was debated in the ordinary sense only at its introduction, when the Finance Minister commended it to the House and members recorded their opening positions, after which it disappeared into the committee’s evidence rooms and never returned to the floor. There was no second reading debate in which the government defended the settlement as a whole, no clause-by-clause consideration in which the contested provisions were voted on, and no moment at which any member was required to say, on the record, whether the Code should exist. The arguments that decided its fate were made elsewhere: in the committee’s report, in the fiscal consolidation committee’s warning, in the budget speeches that borrowed its contents, and in the representations of the affected interests. A statute that proposes to reorganise the obligations of every taxpayer in the country was, in the event, neither accepted nor rejected by the legislature. It was outlasted.

The positions recorded at introduction and in the committee’s proceedings repay attention because they show how early the lines hardened. The government presented the Bill as modernisation, the completion of a reform arc running from 1991, and emphasised the relief to the individual taxpayer, which was real. The opposition benches, whose senior figure on tax matters chaired the committee examining it, did not attack the idea of a code; they attacked the generosity of its arithmetic, arguing from the committee room that the exemption limits were set too low for an inflationary decade, an argument that cost them nothing and placed the government in the position of defending a smaller relief than Parliament proposed to give. Industry’s chambers welcomed the thirty per cent corporate rate and the promise of stability while resisting the minimum alternate tax increase, the breadth of the anti-avoidance rule and the withdrawal of profit-linked exemptions on which investment decisions had been premised. The Institute of Chartered Accountants of India, whose members would have to operate the Code, submitted detailed clause-level memoranda of the kind professions produce when they expect a text to become law, and its suggestions ran to workability rather than to principle. Nobody in the record of 2010 and 2011 says the Code should not exist. Everybody in it says the Code should be changed in the direction of their interest, and the sum of the requested changes exceeded the Bill.

That is the precise sense in which the committee system, doing its job well, finished the Bill. A standing committee is a machine for converting a government’s text into a negotiated text, and its output acquires a legitimacy that makes outright rejection expensive. When the machine’s product is a list of drafting corrections, the government accepts them and proceeds, as in 2025. When its product is a rival fiscal settlement, more generous than the government’s and blessed by the opposition’s senior finance figure, the government must either outbid its own Bill or shelve the negotiation, and shelving is what the revision of 2013 amounted to. The Fifteenth Lok Sabha dissolved with the negotiation formally open. Nothing in the procedure malfunctioned. The procedure faithfully registered the fact that the country, consulted clause by clause, did not agree on a direct tax settlement, and a Bill that requires agreement on a settlement cannot proceed past the registration of its absence.

Inside the Bill: the clauses that carried the fight

The general account of bundling can be tested against the Bill’s interior, because the document’s difficulties were not evenly spread. Large parts of the Code, its definitions, its computation machinery, its assessment and collection chapters, passed through public debate almost unremarked, and a code consisting of those parts alone would have been law by 2011. The fight concentrated in a handful of clauses, and the identity of those clauses is instructive, because each of them was a clause that took something identifiable away from someone identifiable.

The capital gains proposals took away a distinction the investing public had organised its affairs around. Indian tax law had long separated short-term from long-term gains, taxing patience more lightly than speculation, and the Bill proposed to abolish that distinction for every asset other than securities listed on a stock exchange, taxing gains on property and unlisted holdings on a unified basis. Whatever the intellectual merits, and the merits were arguable, since the distinction had generated a thicket of holding-period litigation, the proposal converted every property owner and every promoter of an unlisted company into a stakeholder in the Bill’s defeat, and property and promoter wealth are not constituencies that lack access to legislators. The savings architecture took away a different certainty. The Bill raised the deduction for approved savings and added heads for insurance and tuition, but it restructured the reliefs as a system, moving housing loan principal out of its familiar place and folding interest relief into a redesigned structure, and every rearrangement of a familiar deduction produces taxpayers who can compute their own loss to the rupee and say it in a sentence. The removal of the small additional basic exemption that women taxpayers then enjoyed, absorbed into the Bill’s uniform threshold, cost the government goodwill out of all proportion to its revenue, a reminder that in tax politics a symbolic taking is still a taking.

The treatment of non-profit organisations, proposed to be taxed at fifteen per cent on a redefined surplus, mobilised the charitable and educational sector, which is to say some of the most respected institutional voices in the country, against a clause few voters would ever read. The securities transaction tax, retained after its abolition had been widely expected, disappointed the market constituency that had treated the Code as its vehicle. The dividend proposals of the draft stage, a five per cent charge on distributions from equity-oriented funds and insurance products, had already drawn the mutual fund industry into the field before the Bill retreated to the status quo. None of these objections was frivolous, and several were, in this article’s judgment, correct on the merits as far as they went. The point is structural rather than evaluative. A drafting Bill has no clauses of this kind in it. The Code had perhaps a dozen, each defended by the government on its own merits in a separate argument with a separate opponent, and the government’s stock of attention, which is the scarcest resource in any legislature, was consumed by the sum of the arguments rather than by any one of them. The committee stage then received the Bill with each of these fights already joined, and the committee, conscientiously hearing the objectors clause by clause, became the arena in which the fights were recorded rather than settled.

There is a coda to the interior account that the standard histories skip. While the Bill sat in committee, its own contents began to leak into the law it was meant to replace. The Budget of 2012 raised the basic exemption in the existing Act to Rs 2 lakh, the Bill’s own figure, and adjusted the slabs in the Bill’s direction, so that taxpayers received a first instalment of the Code’s generosity under the old statute’s authority. Each such borrowing was presented as a down payment on reform. Its structural effect was the opposite: every proposal enacted separately reduced the marginal benefit of enacting the remainder, until the Bill’s remaining contents were predominantly the parts that hurt, the anti-avoidance rule, the exemption pruning, the capital gains restructuring, shorn of the sweeteners that had already been given away. A bundled Bill whose benefits can be distributed in advance through the budget will find its costs legislating alone, and that, in one sentence, is the biography of the Direct Taxes Code between 2012 and 2014.

Lapse, and the policy that arrived without the statute

A lapsed Bill is usually the end of a policy story, and the Direct Taxes Code is the interesting exception, because a striking share of its programme entered the law anyway, carried by the very instrument whose annual routine had made the 1961 Act unreadable. The mechanism deserves a moment’s attention, because it explains why the failure of the Code did not mean the failure of its ideas. The Finance Act, presented with the Budget and passed as a Money Bill on the budget timetable, amends the Income-tax Act directly, needs no separate legislative slot, and cannot be blocked in the Rajya Sabha. A government that cannot find three sessions for a code can find the same policy a home in a Finance Bill clause in a single budget. The Code’s proposals therefore had a standing escape route from the wreck of their own Bill, and finance ministers of two governments used it.

The anti-avoidance rule travelled first and travelled furthest. Even while the Code Bill sat in committee, the Finance Act 2012 wrote a general anti-avoidance rule into the Income-tax Act itself as Chapter X-A, and the same Finance Act carried the retrospective amendment of the source rules for indirect transfers that followed the Supreme Court’s Vodafone judgment, the episode in which the politics of taxing a transaction Parliament believed taxable overwhelmed the deliberative process entirely, and which is traced in the article on retrospective taxation and the Vodafone case. The anti-avoidance rule’s commencement was then deferred repeatedly, softened by the safeguards recommended by the expert committee chaired by Parthasarathi Shome, and it finally took effect from assessment year 2018-19, eight years after the Code had proposed it, in a form more hedged than the Code’s draft and arrived at by accumulation rather than enactment. The residence test based on place of effective management, a Code proposal, entered the Act through the Finance Act 2015. The abolition of wealth tax, which the Code had sought to achieve by absorbing the levy into its own text, was accomplished by the Finance Act 2015 standing alone, with the revenue replaced by an enhanced surcharge on the highest incomes, so that one of the Code’s two repeals happened without the Code.

The corporate rate followed the same path on a longer fuse. In the Budget of 2015, Finance Minister Arun Jaitley announced a roadmap to reduce the corporate rate to twenty-five per cent over four years while phasing out the exemptions through which the effective rate had been bargained down, which was the Code’s central corporate bargain, lower rates for a broader base, restated as a budget commitment. Successive Finance Acts cut the rate for smaller companies in steps, and the Taxation Laws (Amendment) Act 2019 completed the larger part of the journey by offering domestic companies a concessional rate of twenty-two per cent conditioned on surrendering exemptions, taking the effective settlement close to what the Code had sought a decade earlier by entirely different legislative means. Set the two records side by side and the paradox of the episode resolves. The Code’s policy was, in substantial part, enacted. What failed was not the policy but the vessel: the single comprehensive statute in which the policy was to be codified, debated as a whole and commenced on a single date. The Indian legislative system, presented with a programme it could not pass as a whole, passed it in slices through the budget, and each slice that passed reduced the remaining case for the whole.

That paradox has a cost side, and honesty requires it to be stated. Piecemeal enactment delivered the Code’s policy into the worst possible container: the same accumulating, proviso-laden 1961 Act whose condition had justified the Code in the first place. The general anti-avoidance rule sits in the old Act as an inserted chapter among inserted chapters. The concessional corporate regimes sit beside the regimes they were meant to supersede, multiplying the choices an assessee must model. The reformer who asks only whether the policy arrived will call the episode a success. The draftsmen who asked whether the law became more usable must call it something else, and it was their question, dormant through the decade of Finance Act victories, that the next attempt took up.

One clause, three fates: the anti-avoidance rule as the episode in miniature

The general anti-avoidance rule condenses the entire story into a single provision, and following it from draft to force shows each mechanism of the larger episode at work. In the discussion paper of 2009 and the Bill of 2010, the rule was presented as part of the Code’s architecture, a considered allocation of power between taxpayer and revenue under which an arrangement entered into for tax benefit could be disregarded or recharacterised, its consequences recalculated, and its form ignored. As a Code provision it would have commenced with the Code, been interpreted with the Code, and carried whatever safeguards the Code’s passage negotiated into it. The Standing Committee counselled caution and safeguards. The Kelkar moment then intervened, the Code stalled, and the rule’s first fate, life as a Code clause, expired with the Bill.

Its second fate was extraction. The Finance Act 2012, presented weeks after the committee reported, wrote the rule into the Income-tax Act as Chapter X-A, sections 95 to 102, initially to operate from 2013. The extraction provoked the sharpest investor reaction of the whole episode, in a season already dominated by the retrospective amendment, and the government retreated into process: an expert committee under Parthasarathi Shome examined the rule through 2012 and recommended deferral and a battery of safeguards, including a monetary threshold, a panel to approve invocations, and grandfathering for existing investments. Commencement was postponed by successive budgets, the safeguards were progressively written in, and the rule that finally took effect from assessment year 2018-19 was a heavily conditioned instrument, hedged by a threshold of three crore rupees of tax benefit and by procedural approvals its Code ancestor had not contemplated in that form. Its third fate, in other words, was dilution by instalments, purchased by the same constituency pressure that had stalled the parent Bill, except that pressure applied to a clause in an annual Finance Act could only negotiate the clause, while pressure applied to the Code had been able to hold the entire statute hostage.

The comparison of the three fates is the bundling thesis with the variables controlled. The same substantive proposal, with the same friends and the same enemies, failed as part of a comprehensive code, alarmed the markets as a budget extraction, and entered force, trimmed and safeguarded, once it was small enough to be argued on its own merits and its opponents had extracted their price in safeguards rather than in the death of a statute. Nothing about the rule’s merits changed across the decade. What changed was the size of the vehicle carrying it and therefore the maximum damage its opponents needed to inflict to win. Legislatures decide questions at the size they are presented, and the presentation of tax policy in India, after the Code, settled into the size the system can decide: one clause, one budget, one argument at a time.

The successor government’s review, and the closing of the file

The election of 2014 changed the government but not, immediately, the official position, and the interval is worth recording because it shows the Code dying a second, quieter death by review rather than by rejection. The revised Code of April 2014 had been published for public comment, and the incoming Finance Minister, Arun Jaitley, told Parliament in his first Budget speech in July 2014 that the government would consider the comments received from stakeholders on the revised Code and take a view on the whole matter after reviewing the Code in its existing shape. No view was ever announced in those terms. Instead, the government’s budgets from 2015 onwards pursued the corporate rate roadmap, the exemption phase-out and the administrative reforms as free-standing commitments, and the comprehensive review Jaitley had promised dissolved into the piecemeal programme described in this article. The file was never closed by a decision anyone had to defend. It was closed by the accumulation of substitutes, each of which made the reopening of the file less necessary, until by the time the task force of 2017 was appointed the question before it had quietly changed from whether to enact the Code to whether a wholly fresh draft could succeed where the inherited one had not been attempted.

That second death carries its own lesson for the student of legislative failure. A Bill that lapses with a dissolved House leaves a clean corpse: the text is dead, and a successor government may revive the idea in its own form, as happened in 2017 and again in 2024. A Bill that is neither enacted nor withdrawn but held perpetually under review occupies a worse position, because its existence deters fresh drafting, on the ground that the matter is in hand, while its condition deters enactment, on the ground that it is unfinished. The Direct Taxes Code spent the years from 2014 to 2017 in that antechamber, too alive to replace and too compromised to pass, and the task force’s first service was simply to clear it away.

The second attempt at a code: the task force that reported in private

Between the lapse of the Bill and the success of 2025 sits a third episode that is usually skipped, and it matters because it shows the pattern repeating under a different government with the lesson still unlearned. On 22 November 2017 the government constituted a task force to review the Income-tax Act and draft a new direct tax law, under the convenorship of Arbind Modi, the Member for Legislation of the Central Board of Direct Taxes. Its terms of reference asked for a draft aligned with the direct tax systems of other countries, international best practice and the economic needs of the country, which is to say it was commissioned, once again, to write a code of policy and not merely a code of language. The exercise was then overtaken by the ordinary accidents of administration. The convenor retired, and on 26 November 2018 the task force was reconstituted under a new convenor, Akhilesh Ranjan, with its membership refreshed and its deadline extended. In June 2019 its terms were widened to take in faceless and anonymised assessment, litigation management, process simplification and the sharing of information among the revenue agencies, each an administrative reform in search of a statute.

The reconstituted panel was a serious body by any standard: alongside the convenor it included Girish Ahuja, the chartered accountant whose textbooks had taught the existing Act to generations of practitioners, Rajiv Memani of the professional services firms, the tax advocate Mukesh Patel, the researcher Mansi Kedia and the retired revenue officer G. C. Srivastava, with the Chief Economic Adviser Krishnamurthy Subramanian added when the remit widened in 2019. Its composition refutes in advance any suggestion that the exercise failed for want of expertise. The reconstituted task force submitted its report to Finance Minister Nirmala Sitharaman on 19 August 2019. The report, which contained a draft Bill, was never published. What the public record holds is a set of press accounts attributing to the panel a rearrangement of the personal income tax slabs, a roadmap towards a twenty-five per cent corporate rate, and measures for compliance simplification and litigation reduction, and a government silence that has never been formally broken. No Bill drawn from it was introduced, no white paper adopted or rejected its recommendations, and its draft joined the Direct Taxes Code 2013 in the category of complete replacement texts that exist as documents rather than as legislation.

The episode is worth the reader’s attention for what it reveals about the recurring shape of the failure. In each of the first three attempts, the drafting was entrusted to a body asked to settle policy and language together, the drafting proceeded in private over years, and the product arrived, if it arrived at all, as a single large object whose passage required a government to spend scarce parliamentary priority on hundreds of contested propositions at once. The 2017 task force never even reached the stage of parliamentary contest, and its unpublished report is the purest case of the disease: maximum substantive ambition, minimum legislative traction. When the successful attempt came, its authors had the three failures in front of them, and the design of the 2025 exercise reads, point by point, like a list of their negations.

The years after the task force reported completed the education of the reformers, because the policy stream kept flowing around the obstacle of the code. Faceless assessment, one of the subjects added to the task force’s remit in 2019, was delivered by scheme in 2019 and 2020 and then written into the 1961 Act itself, reorganising the department’s daily work without any code at all. Litigation management, another added subject, arrived as the Direct Tax Vivad se Vishwas Act 2020, a settlement statute that invited taxpayers to resolve disputed demands on stated terms, and it disposed of a large volume of the arrears litigation that every reform document for thirty years had deplored. Most instructive of all, the Finance Act 2020 created a new optional personal tax regime, later made the default, offering lower slab rates in exchange for the surrender of most exemptions and deductions. That regime was the Direct Taxes Code’s personal tax philosophy, the broad base and the low rate traded against the exemption structure, enacted as an option inside the old Act rather than as a settlement imposed by a new one, and taxpayers migrated to it voluntarily in large numbers because an option, unlike a code, requires the consent of nobody but the person exercising it. By the middle of the twenty-twenties, an observer listing the Code’s proposals and checking them against the statute book would have found the anti-avoidance rule in force, the residence test rewritten, wealth tax abolished, corporate rates cut and conditioned on exemption surrender, the personal slabs rebuilt on Code lines, assessment made faceless and litigation offered a settlement window. The Code had lost every battle for its own existence and won a surprising share of the war for its contents, and the only part of its programme that remained entirely undelivered was the part its authors had listed first: a single, usable, consolidated text.

The 2025 replacement and the discipline of changing nothing

The fourth attempt began with a sentence in a budget speech. Presenting the Union Budget for 2024-25 in July 2024, the Finance Minister announced a comprehensive review of the Income-tax Act 1961, to be completed in six months, with the stated object of making the text concise, lucid and easy to read and understand. Every element of that sentence was a design decision. The exercise was a review of the text, not of the tax. The timetable was six months, not six years. And the work was conducted inside the revenue administration, drawing on consultations with stakeholders and tax professionals, rather than by an external committee commissioned to rethink the fiscal settlement. The government said, at the outset and repeatedly, what the exercise would not do: it would not change rates, slabs, exemptions or the fundamental framework of liability, because those matters belonged to the annual budget and not to a drafting exercise. Critics heard that promise as an admission of small ambition. It was, in fact, the mechanism of the Bill’s survival, because it told every constituency that had organised against the Code in 2010 that there was nothing in this text for it to organise against.

Why was the Income-tax Bill of February 2025 withdrawn within six months?

The Income-tax Bill introduced on 13 February 2025 was withdrawn on 8 August 2025 so that its successor could incorporate, in one consolidated text, the Select Committee’s recommendations and the further drafting corrections stakeholders had identified. Carrying hundreds of amendments into a Bill clause by clause would have reproduced the confusion the exercise existed to remove, so the government replaced the text instead.

The Income-tax Bill 2025 was introduced in the Lok Sabha on 13 February 2025 and referred the same day to a Select Committee of the House, chaired by Baijayant Panda and composed of thirty-one members. The choice of a select committee of the House, rather than the standing committee that had examined the Code, kept the examination inside the chamber that would have to pass the Bill, and the way parliamentary committees conduct bill scrutiny, and what the committee stage can and cannot repair, is examined in the article on parliamentary committees and the scrutiny of bills. The committee examined the Bill clause by clause, heard the administration and stakeholders, and presented its report on 21 July 2025, a report running to some 4,584 pages and carrying 285 recommendations. The character of those recommendations is the single most telling contrast with 2012. Where the Standing Committee on Finance had used its report to reopen the policy, proposing higher exemptions and redrawn slabs, the Select Committee’s recommendations were overwhelmingly corrections of the drafting: definitions realigned, phrases harmonised, cross-references repaired, a refund entitlement restored for taxpayers who file after the due date, a deduction for inter-corporate dividends reinstated to prevent double taxation in company groups, and the treatment of house property and pension receipts clarified. A committee asked to examine a Bill that changes no policy produces a report about words, and a report about words can be accepted almost entire.

The government accepted the great majority of the recommendations, and then did the thing that looks like failure and is actually the method working. On 8 August 2025 the February Bill was withdrawn, and on 11 August 2025 the Income-tax (No. 2) Bill 2025 was introduced in its place, incorporating the committee’s corrections and further drafting improvements in a single consolidated text, so that the House would vote on one clean version rather than on a base text plus hundreds of amendments. The Lok Sabha passed it the same day, and the Rajya Sabha passed it on 12 August 2025. The passage was not a model of deliberation in every respect: the Lok Sabha cleared the Bill without a debate, amid opposition protests directed at an unrelated electoral controversy, and a tax code deserved better of the chamber than a voice vote in a disturbed House. That blemish belongs in the record. It does not alter the structural point, which is that no organised interest outside the House was pressing members to vote either way, because the Bill changed no member’s constituents’ tax bills. The President’s assent followed on 21 August 2025, and the statute became the Income-tax Act 2025, Act 30 of 2025.

When does the Income-tax Act 2025 come into force?

The Income-tax Act 2025 operates from 1 April 2026. From that date it governs the tax years beginning on or after it, while the Income-tax Act 1961 continues to govern every earlier period, so the two statutes run in parallel through a long transition in which the new Act taxes the future and the old Act finishes the past.

Set the 2025 sequence against the 2010 sequence and the difference in committee behaviour alone carries the argument of this article. In 2010 the government sent Parliament a Bill whose contents every interest in the country had a stake in, and the committee stage became a second budget negotiation, conducted in evidence sessions and concluded with a more generous settlement than the government could afford. In 2025 the government sent Parliament a Bill whose contents no interest had a stake in beyond accuracy, and the committee stage became what committee stages are designed to be, a proofreading of a text by legislators with staff, concluded with corrections the government could accept without pain. The institution did not change between the two episodes. The object placed before it did, and the institution behaved accordingly.

How the 2025 text was made: drafting as an administrative exercise

The method of the 2025 drafting is a study in itself, because it inverted every procedural choice the Code had made. The Code had been drafted as a public intellectual event: a draft published to the world in 2009, a year of open consultation, a revised paper, a Bill, a standing committee, a redraft, each stage generating its own constituency and its own headlines, the whole process lasting from a first discussion paper to a lapse across five years. The 2025 text was drafted as an administrative operation. The review was housed in the revenue department and the Central Board of Direct Taxes, executed by committees of serving officers working to the six-month deadline the Budget speech had announced, and fed by structured consultations with stakeholders whose submissions were invited on the existing law’s pain points rather than on the design of an ideal system. The Finance Ministry’s own account of the exercise credits it with some seventy-five thousand person-hours of departmental work, a figure worth pausing on, because it records where the labour of simplification actually sits: not in choosing what the law should be, but in the unglamorous verification that a renumbered provision still means what its predecessor meant, multiplied by eight hundred sections. Consultation figures in the story differently than it did in 2009. The stakeholders of 2009 were asked to react to proposals that would change their liabilities, and they reacted as parties. The stakeholders of 2024 were asked to identify obscurities, dead provisions and drafting traps in a law whose liabilities were frozen for the purpose, and they reacted as proofreaders. The same professional bodies appear in both stories, transformed from litigants into collaborators by nothing more than the terms of reference they were handed.

The other inversion was of the public promise. The Code’s authors had advertised ambition, and every advertisement recruited opponents. The 2025 authors advertised restraint, in terms that critics quoted back as evidence of timidity, and the advertisement functioned as a shield: a parliamentary question, a committee hearing or a press inquiry that began by asking what the Bill changed could be answered, truthfully and completely, by the formula that rates, slabs and exemptions were untouched and belonged to the budget. The formula ended arguments that the Code’s sponsors had been obliged to fight clause by clause. There is a temptation to describe this as mere presentation, and it should be resisted. The restraint was substantive in its effect on the legislative process, because it determined in advance what kind of scrutiny the Bill would receive, what kind of committee report was possible, and what kind of vote the Bill would need, which is to say it determined the Bill’s fate before the Bill was printed. Presentation, in legislation, is a load-bearing structure.

What the successful replacement kept, discarded and added

A replacement statute is three operations performed at once, and they are worth separating, because the verdict on 2025 depends on keeping them apart. The first operation is conservation: what the new Act carried over from the old. In 2025 the conservation was nearly total. The charge on total income, the scope based on residence and accrual, the five heads of income, the architecture of deductions and exemptions, the withholding machinery, assessment and reassessment, the faceless administration built up since 2019, the general anti-avoidance rule that the Code had proposed and the Finance Act 2012 had enacted, minimum alternate tax and its alternate for other persons, the appeals ladder, penalties and prosecution: all of it crossed into the new statute, renumbered and reworded but substantively intact. The rates and slabs that determine what any taxpayer actually pays were not in the Bill at all, since they live in the annual Finance Act and continued to be set there. The second operation is deletion, and here the exercise did its celebrated work. Set against the closing text of the 1961 Act, the new statute reduced 819 effective sections to 536, forty-seven chapters to twenty-three, and a text of about 5.12 lakh words to about 2.6 lakh, discarding on the drafting side some twelve hundred provisos and nine hundred explanations that had accreted over six decades, and replacing swathes of prose with tables and formulae that state a computation once instead of narrating it repeatedly.

How many sections does the Income-tax Act 2025 have?

The Income-tax Act 2025 has 536 sections in twenty-three chapters with sixteen schedules. The figures are the headline of the simplification exercise: the 1961 Act closed with 819 effective sections in forty-seven chapters, and the replacement carries a little under two-thirds of the sections and about half the words.

The third operation is addition, and it is the one the simplification framing tends to bury. A Bill presented as containing no policy change in fact carried at least one change of genuine substance, the treatment of the digital record in search proceedings. The 1961 Act’s search powers reached books of account and documents; the new statute defines the searchable universe to include the virtual digital space in which records are kept, a concept drawn widely enough to cover email servers, social media accounts, online investment and trading accounts, cloud servers and digital applications, and it equips the authorised officer to gain access to that space in a search, including by overriding access codes, with the person in control obliged to render assistance. The Select Committee examined the provision, and the Finance Minister gave assurances that standard operating procedures would govern the handling of seized personal data. The scrutiny the provision deserved was of a different order from the scrutiny of a renumbering, because a power to open a citizen’s correspondence and cloud storage during a search is a substantive enlargement of the coercive apparatus, and it travelled through Parliament inside a Bill whose marketing promised that nothing substantive was travelling at all.

This article takes no shortcut through that point. Digital rights advocates, among them the Internet Freedom Foundation, objected during the Bill’s passage that access of this breadth, exercisable on search authorisation and extending to private communications unconnected with the material under investigation, was disproportionate, and that a simplification exercise was the wrong vehicle for it. The revenue’s case, stated by the Finance Ministry, is that concealed income is kept in digital form, that a search power confined to paper and premises would be a power to search the previous century, and that the statutory safeguards around search authorisation apply to the digital space as they apply elsewhere. Both cases are real. The conclusion the record supports is narrower than either: whatever the merits of the power, its presence in the Bill qualifies the claim that the 2025 exercise changed nothing, and it demonstrates the risk built into the unbundling strategy itself, which is that a Parliament assured there is nothing to fight about may examine the occasional substantive passenger less closely than it should. The strategy’s strength and its hazard are the same property, low political salience, seen from two sides.

One addition, by contrast, was pure vocabulary and was sold as such. Where the 1961 Act ran on a pair of linked years, the previous year in which income was earned and the assessment year in which it was taxed, the new statute substitutes a single concept, the tax year, being the year of earning itself, and retires the pair. The change settles a confusion generations of students and first-time filers stumbled over, and it alters no liability by a rupee. It is the emblematic 2025 reform: a genuine improvement in the usability of the law that any taxpayer can verify, and one that could be enacted precisely because it cost nobody anything. The Code of 2010 had contained drafting improvements of the same order, buried under its policy cargo and lost with it, which is the small tragedy inside the large one. Fifteen years of usable drafting waited for a vehicle that was not also carrying a fiscal argument.

Living with a renumbered statute

The least discussed consequence of a successful replacement is the interval in which the profession knows neither text by heart, and the 2025 succession will exhibit it in an unusually pure form because the replacement changed every address and no liability. A practitioner advising on a transaction that straddles the succession must work in two statutes at once: the old Act for the years it governs, the new Act for the years it will govern, and the concordance between them for the concepts that survived the crossing. Precedent must be cited by its original section and located at its new one. Departmental circulars issued under the old Act must be assessed for carriage into the new. The first generation of disputes under the new statute will be disproportionately about the map rather than the territory, about whether a renumbered and reworded provision carries its predecessor’s settled meaning, and those disputes are the unavoidable transaction cost of any restatement, which a reformer must budget for exactly as a finance minister budgets for a revenue cost. The Code of 2010 would have charged the same cost at a higher rate, since its map disputes would have been compounded by genuine changes of liability at the contested points, and one quiet advantage of the unbundled succession is that its map disputes are at least only about meaning, in a statute whose sponsors have formally disavowed any change of meaning to dispute about.

The institutional learning of the episode is also worth extracting before the verdict, because it extends beyond tax. The Code was examined by a standing committee in the ordinary way and the examination enlarged the dispute; the Act of 2025 was examined by a select committee of the House that would pass it, on a text that excluded dispute, and the examination improved the drafting. Between those two data points lies a usable rule about committee referral itself: a committee amplifies whatever is put into it. Refer a Bill carrying an unsettled policy and the committee becomes a second legislature, with a second settlement to sell. Refer a Bill carrying only a text and the committee becomes a second draftsman, which is the function at which committees, staffed by members with time and served by the legislative secretariat, are genuinely excellent. Governments that complain about committees obstructing their programmes are usually describing Bills whose programmes were never settled, and governments that praise committees, as the sponsors of 2025 could, are usually describing Bills whose programmes were settled before referral or excluded by design. The instrument is neutral. The input decides.

The agenda the Code left behind

A complete accounting has to end with the proposals that neither the Finance Acts nor the Act of 2025 delivered, because they define the work that remains and they explain why the Code, for all its failures, has not been forgotten by the people who draft tax policy. The first is the controlled foreign corporation regime. The Code proposed it, the task forces assumed it, and India still has no enacted CFC rules, so that the passive income of a foreign company controlled by Indian residents and parked offshore without distribution remains reachable, if at all, only through the general anti-avoidance rule and the residence doctrines, instruments designed for other purposes. The second is the systematic pruning of the exemption structure as a single, coherent operation. The optional new regime achieved much of the substance for individuals by inducement rather than by repeal, and the corporate concessional regimes did the same for companies, but the old structure stands unrepealed beside the new, and every Finance Act must still legislate for both, so that the simplification of the base was accomplished by addition rather than by decision, at a permanent cost in the complexity the reformers set out to reduce. The third is the narrowing of the base itself, the small share of the population that pays income tax at all, which no drafting exercise can widen and which the Code’s revenue arithmetic foundered on in 2012 exactly as any successor programme will founder on it: generosity to the existing base is expensive precisely because the base is narrow, and widening it is an administrative and political project of a decade, not a clause in a code.

The fourth undelivered item is subtler and concerns the treaties. The discussion paper of 2009 had proposed that in a conflict between the Code and a tax treaty, the later instrument should prevail, a proposal investors read as a standing licence to override treaty commitments by ordinary legislation. The proposal was softened as the drafts progressed, and the existing law’s own settlement, under which the provision more beneficial to the taxpayer applies, survived the whole episode undisturbed. The question the draft raised, how a state that legislates annually is to keep faith with instruments it signs for decades, was never answered, only postponed, and the retrospective amendment of 2012 answered it in practice in the worst available way. A future recodification, if one is ever attempted, will inherit all four items on this list in exactly the condition the Code left them, together with a fifth item the Code’s authors could not have foreseen: the digital search power that the Act of 2025 carried into law, whose proportionality will be tested in the courts and whose presence in a simplification statute will be cited, by whichever side it suits, as the proof that no Indian tax text is ever only a text.

Why one failed and one passed

The comparison the whole episode turns on fits in a single table, and the table is worth reading by rows rather than by columns, because the explanation lives in one row of it. Readers who keep the two Bills and the two committee reports as working documents for that comparison, in the document formats in which bills and reports circulate, can open them in a browser through ReportMedic’s office file viewer for reading Word, Excel and presentation files without desktop software, and work across the texts side by side.

Dimension	Direct Taxes Code (2010 to 2014)	Income-tax Act 2025
Stated objective	Consolidate direct tax law and redesign its policy in one statute	Make the existing law concise, lucid and easy to read, as a text
Whether rates and policy changed	Yes: slabs, exemptions, savings treatment, corporate rate structure, anti-avoidance, residence and wealth tax all repriced	No: rates, slabs, exemptions and the liability framework expressly untouched, one digital search power aside
Constituencies affected	Savers, companies under minimum alternate tax, exporters, special economic zones, foreign investors, high-income taxpayers, each on a different clause	None by liability; practitioners and students by renumbering alone
Committee stage and its product	Standing Committee on Finance, report of March 2012, reopened the policy and recommended a more generous settlement	Select Committee of the Lok Sabha, report of July 2025, 285 recommendations, overwhelmingly drafting corrections
Time from introduction to outcome	Introduced 30 August 2010, never voted on, lapsed in May 2014; a redraft published in April 2014 was never introduced	Introduced 13 February 2025, withdrawn and reintroduced in August 2025, assented to on 21 August 2025, in force 1 April 2026
Outcome	The statute failed; much of its policy was later enacted piecemeal through Finance Acts	The statute passed within a single session’s work; its policy content awaits future budgets

Read down the second row and the rest of the table explains itself. A Bill that changes what people pay manufactures its own opposition and then has to defeat that opposition in committee, in the press and in the queue for parliamentary time. A Bill that changes only how the law reads manufactures proofreaders.

The law of the transition: what a repeal does to the past

Template and instinct both treat commencement as the end of a replacement story, and both are wrong for tax, because a tax statute’s past is not history but live liability. The operative legal point of the entire 2025 succession, the one that will decide real cases for decades, is the transitional rule, and it can be stated precisely. The Income-tax Act 2025 repeals the Act of 1961 for the future and saves it for the past. Income earned in any period up to 31 March 2026 is charged, assessed, appealed and penalised under the 1961 Act, in the version of its text that stood for the year in issue. A return for the financial year 2025-26 is filed under the old Act, an assessment for that year is made under it, a reassessment of an earlier year proceeds under it, and an appeal heard years later against any of those orders is argued on the old Act’s sections, before authorities applying the old Act’s machinery. Proceedings relating to periods under the 1961 Act continue under that Act, and nothing pending is transferred mid-stream into the new statute or begun again.

The pattern is not an improvisation. It follows the savings architecture that attended the repeal of the Indian Income-tax Act 1922 by the Act of 1961 itself, reinforced by the general savings doctrine of the General Clauses Act, under which repeal does not disturb rights accrued, liabilities incurred or proceedings pending unless a contrary intention appears. The draftsman of a tax code does not choose whether to write such a clause; the entire stock of unresolved years chooses for him, because the alternative, migrating live assessments into a new code mid-proceeding, would generate a generation of jurisdictional litigation before the new statute decided a single question of substance. What the draftsman does choose is clarity, and the 2025 savings are deliberately plain, which is why the two statutes will run in parallel for a long transitional period, the new Act taxing the future and the old Act litigating the past, and why a practitioner’s shelf will carry the repealed Act, its commentaries and its case law for the whole of a professional lifetime.

Precedent travels on the same bridge. Judgments on the 1961 Act continue to bind for every matter governed by it, and where the new Act reproduces the substance of an old provision in new words, the settled construction of the old provision is the natural starting point for the new, a principle the courts applied after 1962 to provisions the 1961 Act had carried over from 1922. The genuinely hard cases will be the ones where the simplification changed the words and a litigant argues it changed the meaning: the government, having disavowed policy change, will argue expression; the taxpayer, where the new words favour the revenue, will argue substance. That litigation is already predictable in kind if not in outcome, and it is the honest price of any large restatement, payable under the Code of 2010 with compound interest had that Bill passed with its policy changes interleaved through the same renumbered text. One practical caution belongs here rather than in any footnote: this account is general legal information about how the succession works, not advice on any person’s tax position, and which statute governs a particular year, notice or appeal is a question to be settled on the facts of that year, in a field where limitation periods are unforgiving.

The transition also exposes, by contrast, the fate the Code’s transition would have suffered. The Code proposed commencement on a single date for a code that changed liabilities, which meant its savings would have had to arbitrate between two texts and, at the same time, between two fiscal settlements for the same years, with every transitional ambiguity worth money to one side. Grandfathering clauses for zones, exemptions and savings instruments would have been litigated as property-like entitlements. The 2025 transition avoids all of that by the simple expedient of changing nothing that a transition could be fought over. Once again, the unbundled exercise did not merely pass more easily. It commenced more easily, and commencement is where replacement statutes go to be injured.

Three recodifications, three designs

Tax is not the only field in which this series watches Parliament replace a code, and the comparison disciplines the claim. Company law ran the experiment with the bundled design and a different result: the recodification that produced the Companies Act 2013 joined a modernised text to substantial policy change, new institutions, new offences and a new philosophy of corporate regulation, and it consumed the better part of a decade, an expert committee, a Bill that lapsed with one House and a successor Bill that survived another, before emerging as law, an outcome traced in the article on the replacement of the Companies Act 1956. The Companies Act therefore stands against any crude version of the thesis: bundling does not make passage impossible. It makes passage slow, expensive in priority, and dependent on a government’s willingness to sustain one argument across many sessions, which the sponsors of the Companies Act, unusually, possessed and the sponsors of the Direct Taxes Code, in the fiscal weather after 2012, did not.

The criminal law recodifications of 2023 cut the other way. The three codes that replaced the Penal Code, the Code of Criminal Procedure and the Evidence Act bundled renumbering with a measured amount of policy change and passed within months, a speed the comparison with the tax code throws into relief, and the resemblance and difference between the old and new criminal codes is the subject of the comparison of the IPC and the Bharatiya Nyaya Sanhita. Their passage owed something to design, the changes were real but bounded, and something to context, a government with a large majority legislating on a subject where the affected constituencies are diffuse and unorganised in the way taxpayers and companies are not. A home ministry rewriting the criminal law does not face a queue of trade bodies each holding a clause. The lesson generalises with the qualification attached: the resistance a bundled Bill meets is proportional to the organisation of the interests it injures, and direct taxation, where every interest is organised, professionally advised and permanently represented in the capital, is the hardest terrain in Indian law on which to attempt it.

One structural feature of the tax story distinguishes it from both comparisons and deepens the puzzle. Direct taxation sits in the Union List, and a direct tax code is the Centre’s to enact alone: no state ratification, no council of states, no federal bargain stood between the Direct Taxes Code and the statute book. The Companies Act recodification likewise needed only Parliament. The criminal codes needed only Parliament. Of all the great recodifications, the one with the fewest institutional veto points was the tax code, and it was the one that failed, which confirms that the operative veto points in its story were not constitutional at all. They were the informal vetoes of organised interests, fiscal arithmetic and parliamentary time, and a reformer who counts only the formal veto points on the constitutional map will misread the terrain exactly as the Code’s sponsors did, mistaking an unobstructed road for an empty one.

The goods and services tax settlement marks the outer limit of the unbundling strategy, because there the policy could not be unbundled from the instrument at all. A dual value added tax required the Constitution itself to be amended, state taxing powers to be pooled in a council, and a compensation bargain to be written into the amendment, and no drafting-only version of that reform exists, since the reform was the redistribution of fiscal power. Parliament passed it anyway, by the constitutional route, with the near-unanimity that route demands and rewards. The comparison completes the map of the possible. Where the change is textual, unbundle and pass at once. Where the change is policy within a statute, expect the bundled route to cost a decade, or slice the policy into Finance Acts and pay in coherence. Where the change is constitutional, build the consensus the amendment procedure prices in. The Direct Taxes Code’s misfortune was to be a textual reform that insisted on travelling as a policy revolution, priced by the system accordingly, and refused the discount that was available for the asking.

Two counter-readings, taken seriously

The first counter-reading is arithmetical: the 2025 Act passed because the government of the day commanded the Lok Sabha, and the Code failed because its government lost control of events, so the difference is power and not design. The premise is partly true and the conclusion does not follow. The Direct Taxes Code was introduced by a government that also commanded the Lok Sabha, with a finance minister of towering parliamentary experience, and it was never even put to the vote it would probably have won, because the obstacle was never the division lobbies. The obstacle was that forcing the Bill meant owning every one of its controversies simultaneously, against the government’s own fiscal advisers, in the approach to a general election, and rational governments decline such purchases at any level of majority. Majority is a stock of capital. Bundling is a decision about how much of it a single Bill must spend. The 2025 Bill spent almost none, which is why it could be passed in a disturbed House, without debate, as an item of business rather than as a battle, and why its passage proves the design point instead of refuting it. Governments with numbers still choose their fights; the art is to draft Bills that do not require one.

The second counter-reading is deflationary: a simplification that changes nothing substantive achieves nothing, and the celebration of 2025 is the celebration of a very expensive proofreading. The criticism identifies something real, and this article concedes it in terms. The deep pathologies of Indian direct taxation, a narrow base resting on a small fraction of the population, an exemption and deduction structure that riddles the charge, rates at the margin that reward engineering over earning, were the Code’s true subject in 2010 and they are untouched by the Act of 2025, which leaves them to be addressed, if at all, by future Finance Acts. Reform economists who call the new Act a missed opportunity are answering a question the Act never asked. What the deflationary reading understates is the cost of the unusable statute it replaces. Litigation in Indian tax law feeds on textual ambiguity at industrial scale, assessments turn on the archaeology of provisos, and the compliance burden of an illegible code is itself a policy outcome, regressive in incidence because the small taxpayer cannot buy the expertise the large one retains. A text that halves the words, deletes the dead provisions, states computations as formulae and speaks in one vocabulary is not nothing; it is the precondition of every later reform being debated on its merits rather than lost in the thicket. The correct verdict on the exchange is sequential. The 2025 Act solved the problem of 1961, the unreadable code. The problem of 2010, the unreformed settlement, remains on the table where the Code left it, and a future finance minister who takes it up will do so, if the lesson has been learned, in slices sized to survive.

A third strand of response deserves recording because it comes from the profession that will operate the new Act. Practitioners greeted the simplification with relief at a navigable text and with an invoice: every section reference relearned, every precedent re-mapped, every precedent’s new address verified, compliance software and departmental systems rebuilt, and a generation of concordance tables standing between the profession and fluency in its own statute. That cost is transitional and worth paying once. It becomes indefensible only if the accumulation resumes, and on that the record of the 1961 Act permits no optimism by default, because the new Act leaves standing the annual Finance Act mechanism that filled the old one, and its first Finance Acts have the opportunity, which their predecessors never declined, to begin the sediment again. Whether 2025 is remembered as the year the code was cleaned or merely the year it was emptied for refilling depends on a discipline no draftsman can supply: the restraint of future budget drafters, exercised one February at a time.

What the public thought was happening

A word is owed to the audience outside the committee rooms, because the public understanding of both episodes was systematically wrong in the same direction, and the error is diagnostic. When the draft Code appeared in 2009 and the Bill in 2010, the coverage led, understandably, with the slabs: the raised exemption, the ten per cent band, the prospect of paying less. The Code entered the public mind as a tax cut with a statute attached, and every subsequent retreat, the trimmed slabs of the revised paper, the standing committee’s more generous counter-offer, the redraft’s refusal of the Rs 3 lakh limit, was reported as a promise withdrawn, so that by 2014 the Code’s public meaning had inverted entirely: a reform remembered not for the consolidation it attempted but for the relief it advertised and never delivered. Governments contemplating a bundled code should read that inversion as a warning about their own publicity. Announce the policy and the public prices the Bill by the policy alone; the drafting, which is the part that survives contact with the legislature, has no constituency in the headlines and earns no credit when it is all that remains.

The Act of 2025 attracted the mirror-image error. A new income tax law, announced with a simplification acronym and enacted in a blaze of August headlines, was widely received as a change in what people would pay, and the Finance Ministry found itself explaining, in the same breath as it celebrated the statute, that rates and slabs were untouched and that the year’s liabilities had been set by the budget in the ordinary way. The explanation is correct and the confusion is instructive, because it reveals the assumption the Indian taxpayer brings to every tax text: that a new law is a new bill. A legislative culture in which the statute changes only through the annual budget teaches its citizens to read statutes as budgets, and a pure recodification is, in that culture, an almost unintelligible object, a law that changes the law without changing anything. The Code’s authors exploited the assumption by filling their text with price changes. The Act’s authors suffered from it despite emptying theirs. Both experiences belong to the education of the next reformer, who will have to decide, as a matter of design, what the public is to be told a replacement statute is for, and will find that the honest answer, in the successful case, is the one that sounds like a confession: the words, only the words, and the words were worth a statute.

Three errors the record does not support

Because the episode spans fifteen years and two statutes with similar names for their ambition, it has attracted a small folklore of errors, and an authority article earns its keep by refusing them. The first and commonest error describes the Income-tax Act 2025 as the Direct Taxes Code finally enacted, the old project completed at last. It is not, in any sense that matters. The Code was a defined text with defined contents: the Bill of 2010 and the redraft of 2013, proposing specified slabs, a specified savings architecture, anti-avoidance and controlled foreign company regimes, a restructured capital gains law and the absorption of the wealth tax. The Act of 2025 contains none of that programme as a programme. It contains the 1961 settlement rewritten, including several provisions the Finance Acts had borrowed from the Code over the intervening years, which is a different thing: the Code’s ideas survive in the law the way a demolished building’s bricks survive in a wall, and calling the wall the building confuses everyone. The second error states that the Act of 2025 changed tax rates, usually in the direction of claiming a tax cut or a tax increase the statute never made. Rates and slabs are set by the annual Finance Act, the Act of 2025 changed none of them, and a reader whose liability differs across the succession will find the cause in a budget, not in the replacement. The third error misdates the succession, giving the new Act a commencement in the year of its enactment or confusing the assent of August 2025 with operation. The Act operates from 1 April 2026, and every period before that date belongs to the Act of 1961, which is not a pedantic distinction but the rule that will decide which text governs any given assessment.

Beneath the three errors sits a fourth, subtler one, which is to treat the Code as a statute that failed to commence, as if it had been enacted and then stalled at the notification stage like so many Indian laws. The Code was never enacted at all. It has no Act number, no assent date, no Gazette existence as law, and nothing in it was ever, for a single day, the law of India. Its clauses have legal significance only as history and as evidence of what the state once proposed, and the distinction matters practically, because arguments in tax litigation occasionally reach for the Code as an interpretive aid to the law that was eventually passed, and the reach exceeds the grasp: a Bill that Parliament never passed expresses the intentions of a government, not the intention of the legislature, and the provisions that did enter the law entered through Finance Acts whose own statements of objects are the relevant record. The Code’s proper legal afterlife is the one this article has traced, as the source document of a decade of piecemeal enactment, and that afterlife is remarkable enough without promoting the document into a statute it never became.

Verdict: unbundle to pass

The claim with which this article opened can be given its final form. A legislature with many veto points, short sessions and a crowded calendar prices every Bill by the opposition it organises against itself. The Direct Taxes Code organised the maximum available opposition, one constituency per clause, and then discovered that a Bill so priced could not be afforded even by its own government, which withdrew first into revision, then into piecemeal enactment of the same policy through the budget, achieving its fiscal programme at the cost of the coherent statute that was the programme’s point. The Income-tax Act 2025 organised no opposition at all, spent no political capital, absorbed a committee’s proofreading with gratitude, and stands in force as the clean text the Code’s authors wanted, minus the settlement they wanted it to carry. Unbundle to pass is the name this series gives the rule: separate the question of what the law says from the question of how the law is written, put only one of them to the vote, and let the other travel by whatever vehicle its own politics can bear.

The rule has the limits the comparisons drew. It does not enact policy, and a state that used it for everything would simplify its statute book while its settlements fossilised. It cannot help where the instrument and the policy are one, as with a constitutional amendment. And it carries a characteristic risk, exposed by the digital search power that rode inside the 2025 Bill, that a House persuaded there is nothing at stake will scrutinise the exceptions with less care than they merit. Those limits mark the rule’s jurisdiction rather than refute it. Within that jurisdiction, the fifteen-year contest between the Code that failed and the Act that passed is as clean a demonstration as Indian legislative history offers that how a reform is packaged is not a presentational detail added after the policy is settled. It is the decision on which the policy’s survival depends, and the Direct Taxes Code, which changed everything except its own fate, is the standing proof.

Frequently Asked Questions

Q: What was the Direct Taxes Code and why was it proposed?

The Direct Taxes Code was a complete replacement statute for India’s direct tax law, drafted to consolidate the Income-tax Act 1961 and the Wealth Tax Act 1957 into a single modern text. A draft Code and discussion paper were released on 12 August 2009, a revised discussion paper followed on 15 June 2010, and the Direct Taxes Code Bill 2010 was introduced in the Lok Sabha on 30 August 2010. It was proposed because the 1961 Act, amended by more than sixty Finance Acts into several thousand individual changes, had become unusable as a text even for the professionals who operated it, and because the government of the day wished to join the consolidation to a redesign of rates, exemptions and anti-avoidance law in a single settlement.

Q: Why did the Direct Taxes Code Bill lapse?

The Bill lapsed because it was never passed before the House that received it ceased to exist. Introduced on 30 August 2010 and referred to the Standing Committee on Finance, it emerged from the committee in March 2012 carrying recommendations for a more generous settlement than the government, warned by its fiscal consolidation advisers about revenue loss, could accept. The government chose comprehensive revision over enactment, published a redraft in April 2014 that was never introduced, and when the Fifteenth Lok Sabha was dissolved in May 2014 every Bill pending before it, including the Code, lapsed under the ordinary rule that a dissolved House takes its unfinished business with it.

Q: What did the Direct Taxes Code propose to change?

The Bill proposed to reprice direct taxation as well as rewrite it. For individuals it raised the basic exemption to Rs 2 lakh and widened the bands, ten per cent to Rs 5 lakh, twenty per cent to Rs 10 lakh and thirty per cent above that. For companies it set a single thirty per cent rate without surcharge, raised minimum alternate tax to twenty per cent of book profits and added a fifteen per cent branch profits tax for foreign companies. It folded wealth tax into the Code above Rs 1 crore, introduced a general anti-avoidance rule and controlled foreign corporation rules, moved company residence to a place of effective management test, replaced profit-linked exemptions with investment-linked deductions and restructured capital gains.

Q: What happened to the 2017 direct tax task force?

The government constituted a task force on 22 November 2017, under Arbind Modi of the Central Board of Direct Taxes, to review the Income-tax Act and draft a new direct tax law. After the convenor’s retirement the panel was reconstituted on 26 November 2018 under Akhilesh Ranjan, with practitioners and researchers among its members, and its remit was widened in 2019 to cover faceless assessment and litigation management. It submitted its report, including a draft Bill, to the Finance Minister on 19 August 2019. The report was never published, no Bill drawn from it was introduced, and the exercise closed without a formal government decision on its recommendations.

Q: How did the 2025 income tax law succeed where the Direct Taxes Code failed?

By asking Parliament to approve less. The review announced in the Budget of July 2024 promised a concise and lucid text and stated in advance that rates, slabs, exemptions and the framework of liability would not change, so no constituency stood to lose anything by the Bill and none organised against it. The Select Committee’s 285 recommendations were overwhelmingly drafting corrections, which the government could accept almost entire, withdraw the February Bill and reintroduce a consolidated text in August 2025. Where the Code bundled a policy revolution into a recodification and gave every affected interest a reason to fight the whole, the 2025 exercise unbundled the two and put only the rewriting to the vote.

Q: Did the Income Tax Act 2025 change tax rates?

No. The Income-tax Act 2025 changed the organisation, numbering and language of the income tax law and left rates, slabs, exemptions and the framework of liability where they stood. In the Indian system those are set year by year by the Finance Act presented with the Budget, and the rates in force across the succession are the rates the Finance Acts prescribed, not rates chosen by the replacement statute. A taxpayer whose liability changed around the succession will find the cause in a budget measure, such as the optional concessional slab regime introduced in 2020 and later made the default, rather than in the Act of 2025 itself.

Q: What is the tax year concept in the new income tax law?

The tax year is the single period concept the Income-tax Act 2025 substitutes for the linked pair the 1961 Act ran on. Under the older law, income was earned in the previous year, the financial year from 1 April to 31 March, and charged in the assessment year that followed it, so every transaction had to be described by two dates a year apart. The new statute calls the year of earning itself the tax year and retires the pair, so the period in which income arises is the period by which it is identified. The change is one of vocabulary and orientation, worth a great deal in clarity, and it alters no liability by itself.

Q: What new powers did the Income Tax Act 2025 give tax authorities?

The significant addition is in search proceedings. Where the 1961 Act’s search powers reached books of account and documents, the new statute extends them to the virtual digital space in which records are held, a concept covering email servers, social media accounts, online investment and trading accounts, cloud servers and digital applications. An authorised officer may gain access to that space during a search, including by overriding access codes, and the person in control of the system must render assistance. The Finance Ministry defends the power as necessary where concealed income is kept digitally and points to the safeguards around search authorisation, while digital rights advocates object that access of this breadth, inside a Bill presented as a drafting exercise, deserved fuller parliamentary scrutiny.

Q: What was the Direct Taxes Code 2013 and was it ever introduced in Parliament?

The Direct Taxes Code 2013 was the government’s comprehensive revision of the lapsed-in-effect Bill of 2010, prepared after the Standing Committee on Finance reported in March 2012. It ran to 325 clauses in twenty-one chapters with twenty-three schedules, recorded the acceptance, wholly or in part, of 153 of the committee’s 190 recommendations, added a fourth slab of thirty-five per cent on individual incomes above Rs 10 crore, and declined the committee’s proposed Rs 3 lakh exemption on the ground of an estimated Rs 60,000 crore revenue loss. Finance Minister P. Chidambaram placed it in the public domain for discussion on 1 April 2014. It was never introduced in Parliament, and it died as a draft when the general election followed within weeks.

Q: What did the Standing Committee on Finance recommend for the Direct Taxes Code Bill?

The committee, chaired by former Finance Minister Yashwant Sinha, reported in its Forty-ninth Report, presented to the Speaker on 9 March 2012. It accepted the idea of a code and then proposed a more generous settlement than the Bill: a basic exemption of Rs 3 lakh instead of Rs 2 lakh, the ten per cent band running to Rs 10 lakh and the twenty per cent band to Rs 20 lakh, the exemption limit indexed to consumer prices, substantially larger deductions for savings and insurance, a wealth tax threshold of Rs 5 crore instead of Rs 1 crore with graduated rates, safeguards around the general anti-avoidance rule, and the corporate rate left at thirty per cent. The government accepted many recommendations in the 2013 redraft but rejected the exemption increase as unaffordable.

Q: Why did the Direct Taxes Code create a separate group of opponents for almost every proposal?

Because the Bill changed policy and text together, every clause that repriced anything identified its own losers, and the losers did not overlap. Savers resisted the original proposal to tax retirement savings at withdrawal. Capital-intensive companies resisted minimum alternate tax on gross assets, and exemption-dependent companies resisted the move from profit-linked to investment-linked relief. Property owners and promoters resisted the restructuring of capital gains. Foreign investors resisted the controlled foreign corporation rules, the residence test and the draft’s approach to treaties. Non-profit organisations resisted their proposed taxation. Each group could state its objection in one sentence and fight its own clause, so the government faced a queue of distinct oppositions rather than one argument it could answer once.

Q: Which proposals of the Direct Taxes Code became law through Finance Acts?

A substantial share of the programme arrived piecemeal. The general anti-avoidance rule was written into the Income-tax Act by the Finance Act 2012 as Chapter X-A, was deferred and safeguarded on the Shome Committee’s advice, and took effect from assessment year 2018-19. The residence test based on place of effective management entered the Act through the Finance Act 2015, which also abolished the wealth tax the Code had proposed to absorb. The corporate bargain of lower rates for a broader base was delivered through Finance Acts from 2016 and the concessional twenty-two per cent regime of 2019. The personal slab philosophy reappeared in the optional concessional regime of 2020, later made the default. The statute failed; much of its policy was enacted in slices.

Q: Did the Direct Taxes Code ever become law?

No, not for a single day. The Direct Taxes Code Bill 2010 was introduced, examined by a standing committee and never put to a vote; it lapsed on the dissolution of the Fifteenth Lok Sabha in May 2014. The redraft of 2013 was a consultation document that was never introduced. The Code therefore has no Act number, no assent and no commencement, and nothing in it was ever the law of India. Its importance is historical and legislative: it is the source document from which a decade of Finance Act amendments drew their programme, and the standing demonstration that a replacement statute can fail completely while its contents largely succeed.

Q: What kinds of changes did the Select Committee make to the Income-tax Bill 2025?

The thirty-one member Select Committee of the Lok Sabha, chaired by Baijayant Panda, presented its report on 21 July 2025 with 285 recommendations, and their character was overwhelmingly corrective rather than political. It realigned definitions, harmonised phrases across provisions, repaired cross-references, restored the entitlement to a refund for a taxpayer who files a return after the due date, reinstated the deduction for inter-corporate dividends so that company groups would not be taxed twice on the same dividend, and clarified the treatment of house property income and commuted pensions. The government accepted the great majority and incorporated them by withdrawing the February Bill and introducing a consolidated replacement, rather than by moving hundreds of amendments clause by clause.

Q: Is the Income-tax Act 2025 the Direct Taxes Code finally enacted?

No. The two documents share an ambition to replace the 1961 Act and little else. The Code was a defined programme: specified slab changes, a redesigned savings architecture, anti-avoidance and controlled foreign corporation regimes, a restructured capital gains law and the absorption of the wealth tax, all to be enacted as one settlement. The Act of 2025 is the 1961 settlement rewritten in shorter and clearer language, with rates, exemptions and liability expressly preserved, and it disavowed the Code’s method from the outset. Some provisions the Code proposed had entered the old Act through Finance Acts over the intervening decade and were carried across in the rewriting, but bricks reused in a wall do not make the wall the demolished building.

Q: Which two statutes was the Direct Taxes Code meant to replace?

The Income-tax Act 1961 and the Wealth Tax Act 1957. The Code’s stated object, from the discussion paper of 2009 onwards, was to consolidate and amend the law relating to all direct taxes in a single text, and the wealth tax was folded into that design with its threshold raised to Rs 1 crore and a charge of one per cent above it. In the event the two statutes met different fates by different routes. The wealth tax was abolished outright by the Finance Act 2015, its revenue replaced by an enhanced surcharge on the highest incomes. The Income-tax Act survived the Code by eleven years and was replaced, on unchanged policy, by the Income-tax Act 2025 with effect from 1 April 2026.

Q: What was the EET proposal for savings in the original Direct Taxes Code draft?

EET stands for exempt, exempt, taxed: contributions to approved savings would be exempt when made and as they accumulated, and taxed when withdrawn. The draft Code of August 2009 proposed to move long-term savings, including provident fund and pension accumulations built up over a working life, onto that basis, replacing the exempt-exempt-exempt treatment savers had planned around for decades. The proposal produced the first great backlash of the Code’s career, from salaried employees, service associations and the press, and it was withdrawn for retirement savings in the revised discussion paper of June 2010, before the Bill was introduced. The episode set the pattern of the Code’s life: a bold proposal, an organised reaction, and a retreat that shrank the Bill.

Q: Are the policy proposals of the Direct Taxes Code dead or only deferred?

Mostly enacted, partly deferred, and a residue untouched. Enacted, by other vehicles: the anti-avoidance rule, the effective management residence test, the abolition of wealth tax, the concessional corporate regimes and the optional low-rate personal regime. Deferred in the sense that they await a vehicle that can carry them: a systematic repeal of the old exemption structure, which was instead bypassed by inducement, and a serious widening of the direct tax base. Untouched: the controlled foreign corporation regime, which India still has not enacted, and the treaty override question the draft raised and never settled. The Act of 2025 closed the drafting question for a generation. The policy questions the Code posed remain the standing agenda of Indian tax reform.

Q: What is the unbundling lesson of the Direct Taxes Code for large law reform?

The lesson is that a legislature prices a Bill by the opposition the Bill organises against itself. A recodification that also changes policy gives every interest injured by any clause a reason to defeat the whole text, and the resistance accumulates faster than a government can settle it, as the Code found between 2010 and 2014. A recodification that changes only the text organises no resistance, passes on proofreading, and leaves the policy to travel by vehicles sized to their own politics, as the Act of 2025 found. The rule has limits: it cannot enact policy by itself, it fails where the instrument and the policy are constitutionally one, and it risks carrying substantive passengers under low scrutiny. Within those limits, it is the clearest transferable rule the episode offers.

Q: How long did the Direct Taxes Code Bill remain pending in Parliament?

The Bill was introduced in the Lok Sabha on 30 August 2010, referred to the Standing Committee on Finance on 9 September 2010, and reported on in March 2012. After the report the government took the Bill back for comprehensive revision rather than bringing it to a vote, and it remained formally pending, neither debated to a conclusion nor withdrawn, until the Fifteenth Lok Sabha was dissolved in May 2014 and it lapsed. Its parliamentary life was therefore a little under four years, of which roughly eighteen months were spent in committee and the remaining period in a revision process whose product, the Code of 2013, was published for public comment in April 2014 and never introduced.