Summary: The proposed Direct Tax Code 2025 aims to overhaul India’s tax framework, but certain structural inconsistencies in current laws warrant attention. While the Companies Act mandates strict compliance for corporate entities, similar requirements are absent for LLPs, cooperatives, charitable trusts, partnerships, and NGOs, despite their significant public financial dealings and tax benefits. To address these gaps, the professional fraternity suggests integrating exempt incomes as deductions under gross total income for uniform accounting and auditing. Further, depreciation provisions under the Companies Act should align with the Income Tax Act to minimize mismatches in financial reporting. The issuance of PAN should be restricted to entities registered under respective authorities like SEBI, DGFT, and RBI. Additionally, adopting a cash basis accounting system for non-public enterprises could resolve mismatches and disputes, as most tax deductions are tied to actual payments. These measures aim to enhance accountability and consistency in India’s tax ecosystem.
Dear Professional collogues,
All of us are aware that Central Govt. is making every effort to amend the existing commercial and economic laws and proposed Direct Tax Code is one of them. However being an accountant by profession, we cannot ignore the basic structural differences created by the government among various laws in respect of one transaction, sale, purchase, income, expenditure, document, asset or liability that may be stated in any financial report(s). For example Provisions regarding Statutory Audit, Accounting Standards, Audit Standards, Format of Balance Sheet, Profit & Loss, Cash Flow, Depreciation, Directorships etc. prescribed under the Companies Act are not applicable to non corporate entities like LLPs, Cooperative Societies, Charitable Trusts, AOPs, Partnerships and NGOs while these entities avail huge credit facilities from the banks and public financial institutions, collect money in form of donations and tuition fee from public and enjoy the tax exemptions as well.
Therefore in my opinion, the government should while drafting the proposed Direct Tax Code 2025 should be advised by the professional fraternity to-
1- Transfer all provisions of Exempt Incomes under Income Tax Act to the Deductions from Gross Total Income reported in the Financial Year, it will ensure that all incomes, receipts, payments, expenditure, assets, liabilities shall be accounted for and audited / verified.
2- Depreciation provided under the Companies Act should be recognized as such under Income Tax Act to iron out all mismatches between the financial reports under two legislations.
3- PAN No must be issued only to those who are registered under respective Registration Authorities for HUF, AOP, BOI, Trust, Society, NGO. SEBI, DGFT, RBI etc.
4- All major Tax deductions are available on the basis of actual payments by cash or bank, therefore is accrual basis of accounting is replaced with cash basis accounting by law relating to accounts in case of non public enterprises, all adjustments, pendency, mismatch, disputes, deferments shall come to and end.
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