A Review of Direct Taxation in India: Evolution, Challenges, and Reform Initiatives

A Review of Direct Taxation in India: Evolution, Challenges, and Reform Initiatives

1Pooja Yashwanth Rai, 2Dr. Arvind Saxena

1Research Scholar, 2Associate Professor

1,2Department of Management, Kalinga University, Naya Raipur [C.G.], India

ABSTRACT

India's direct tax regime has been a critical pillar in the country’s fiscal architecture, playing a central role in revenue mobilization, economic regulation, and social equity. Since independence, the structure and administration of direct taxes—including income tax, corporate tax, and capital gains tax—have undergone extensive reforms to align with changing macroeconomic conditions and global best practices. This review paper presents a detailed analysis of the evolution, challenges, and reform initiatives in India's direct taxation framework. Beginning with the pre-independence rudimentary system, the paper traces the post-independence consolidation under the Income Tax Act of 1961, followed by the liberalization-era reforms of the 1990s driven by the recommendations of the Raja Chelliah Committee. The study critically evaluates ongoing issues such as complexity in compliance, administrative inefficiencies, and widespread tax evasion, which continue to undermine the system’s effectiveness. Key reform initiatives including the proposed Direct Taxes Code (DTC), rationalization of tax rates, and the adoption of digital tools such as e-filing and faceless assessments are analyzed for their impact on taxpayer behavior, revenue collection, and transparency. The paper further explores the implications of emerging policy debates, including wealth taxation and progressive redistribution, for the future of direct taxation in India. By synthesizing historical trends and recent developments, this review provides a holistic understanding of the Indian direct tax regime and offers policy suggestions for creating a simplified, equitable, and growth-oriented tax system.

Keywords: Direct Taxation, Income Tax, Corporate Tax, Tax Reforms, India, Digital Tax Administration, Tax Evasion, Direct Taxes Code (DTC), Fiscal Policy, Economic Equity