The policy of taxation suffers from intrinsic denials, which make its application complex. Thus, the palpable explanation of fiscal streamlining dwells on an in-depth understanding of the fiscal system of a state mainly on a sequential analysis of the pointers that throws light on the performance of a tax system. Since 1991, the tax structure has been substantially rationalized. Changes at the central government level include reducing customs and excise duties, lowering CIT rates, extending a form of VAT to some industries, and broadening the tax base to some services. At the state level, the main reform has been the introduction in 2005 of the VAT in 24 states and union territories, after ten years of delay. During the recent years innovative schemes introduce by the respective authorities in India commodity tax, security tax, fringe benefit tax, tonnage tax, banking cash transaction tax and dividend tax are the main important direct tax schemes in India. Direct Tax Code 2009 suggest to improve the efficiency and equity of Indian tax system by eliminating distortions in the tax structure, introducing moderate level of taxation and expanding the tax base. And the aim of the new code is to simplify the enormous complexity in direct tax since the enactment of IT Act 1961. The proposed changes in the tax rate will rob the exchequer of the benefits of the larger tax base and likely to result in the significant revenue loss to the exchequer. The special interest group prevails in keeping the exception and preference unchanged while the tax rate is reduced, there will be huge loss of revenue. The vital question is whether the country can afford this at the time when the need of hour is to return to the path of fiscal consolidation.
