A Comprehensive Framework for Direct Tax Reforms in India: Analysis

Abstract

Direct taxes are important for India’s economic growth. They help gather money, share wealth, and show the government’s goals. However, the way these taxes are set up affects growth, fairness, and whether people follow the rules. This study examines the efficacy of India's main direct taxes. These taxes are personal income, corporate income, and capital gains taxes. This study finds problems that make it difficult for people to follow tax rules and make good economic choices. This suggests that changes are possible and politically sensible. This study reviews changes since 1991 and examines past research on tax policy and digital tools. It checks how the tax system works, including the use of technology to enforce rules and solve disputes. The study found that even with lower rates and better digital tools, problems still exist. These include fairness, complexity, stable revenue, and unequal digital access, which can worsen regional and social disparities. Personal income tax relies too much on salaried workers and has many exemptions that make it complicated and lead to tax disputes. Corporate tax cuts in 2019 might have helped investments, but also reduced revenue and had complex rules. The capital gains tax has different rules for different assets, leading to tax-driven decisions that hurt market efficiency. New tools, such as faceless assessments and AI, have improved transparency, but issues with disputes and trust remain. This study suggests a reform plan with low rates, fewer exemptions, and fairness. It proposes short-term changes to simplify capital gains and deductions, medium-term changes to personal income tax, and long-term changes to integrate taxes and use advanced analytical techniques. The plan requires careful steps, clear communication, and the involvement of stakeholders to keep revenue stable and make the tax system fair and sustainable.