Tax: Keep What You Earn

The plan

1. Repeal the Income-tax Act, 2025 on switch day. Personal income tax, corporate tax, capital gains tax, minimum alternate tax, tax on dividends and all TDS and TCS end on the same day the new taxes start. Income earned before the switch is closed with one final return, due 6 months after switch day.
2. Bank Transaction Tax (BTT). Banks and NPCI deduct it automatically on every incoming credit to a bank account: UPI, IMPS, NEFT, RTGS, NACH, cards and wallet loads. Parliament levies it under its residuary taxing power (Article 248 and Entry 97 of the Union List). It has two rates, the same for every person and every business:
   • Retail rate on all other credits (salaries, payments between people, consumer payments): a flat 0.5%, fixed in law from day one.
   • Supply-chain rate of 0.25% on business-to-business credits matched to a GST e-invoice, so a low-margin trader is not taxed several times down the chain. Loan principal paid out by, or repaid to, an RBI-regulated lender and tagged in the credit-bureau record also pays 0.25%, so borrowing is not taxed like income (Chapter 3).
   • Exempt: RBI operations, CCIL interbank clearing, exchange clearing houses, and transfers between a person's own accounts. A visitor loading a UPI wallet from their own foreign card counts as an own-account transfer (Chapter 2).
3. Flat 10% GST on everything. One rate, with no cess and no luxury slab. Electricity, petrol, diesel and newly built property come inside GST, so businesses get full input credit on them. The resale of existing land and buildings is not a supply and pays no GST; a sale carries only the BTT on the seller's credit.
4. Fixed per-unit levies, counted as consumption taxes.
   • A fuel and carbon levy on petrol and diesel, sized to keep today's central fuel duties (₹3.27 lakh crore in FY26) and the states' fuel VAT (about ₹3 lakh crore). Each state receives the part collected on fuel sold in it. It shrinks as electric vehicles grow (Chapter 19).
   • An alcohol and tobacco levy, charged once at the factory or the border at one national rate per unit, 100% to the states, replacing state excise (₹2.49 lakh crore in 2023-24, CAG).
5. National property tax of 0.4% of market value on all land and buildings, the same for every owner, including government property. Stamp duty and registration fees are abolished, and so are state vehicle tax and electricity duty. Each property is valued yearly from the digitised land registry (Chapter 5) by an independent area index. The rate is one 0.4% in every state, city and district and for every property type: no local body can vary it, and there are no default exemptions or discounts. It is auto-debited each year from the owner's linked bank account, in monthly or yearly instalments at the owner's choice, with no bills, no counters and no collection staff. If the account is short on the due date, the owner gets 30 days of alerts; after that the unpaid amount becomes a charge on the property under the deferral rule below. Cities grow their take by growing the base, more and more valuable buildings, never by changing the rate. Each city or district keeps at least what it raised from municipal property tax in the previous year; the rest goes to its state treasury to replace the abolished state taxes. Every rupee stays with states and local bodies (Chapter 28).
6. Transition surcharge. A 1% surcharge on bank cash withdrawals above ₹50,000 a month per person applies only until all notes and coins end at month 12 (Chapter 2). It is a temporary brake on cash, not a fourth tax, and it ends at month 12.
7. 30-day amnesty. Anyone can declare any asset with zero tax and zero penalty in the first 30 days. After the window, an asset found outside both the declaration and the public registries can be forfeited by court order after a hearing, the same rule for every person.
8. Three taxes only, written into the Constitution. Only the BTT, the property tax and consumption taxes (GST, the fixed per-unit levies and the 5% import duty) are lawful. The constitutional amendment that deletes the other tax entries and moves property tax and stamp duty is Chapter 28's Bill B, which needs ratification by half the states. Any new tax of another kind needs a two-thirds vote of Parliament.

Cost and return

The base (estimate, from the 2024 payment data):

• RTGS: about 60% is interbank, market and own-account flows, so about ₹775 lakh crore is taxable (₹1,938 × 40%).
• NEFT about ₹346 lakh crore, UPI about ₹230 lakh crore, and IMPS, cards and NACH about ₹130 lakh crore, after own-account transfers.
• Total ≈ ₹1,480 lakh crore in 2024. At about 15% a year (UPI value grew about 30% in FY25), two years of growth gives ≈ ₹1,960 lakh crore, rounded to ₹2,000 lakh crore. The switch year itself comes later, so the real base should be larger.
• Split (estimate): about 40% business-to-business and invoice-matched (₹800 lakh crore) and 60% retail (₹1,200 lakh crore).

Why the flat rate works: velocity and the hidden economy (estimate).

• Velocity. UPI carried ₹314 lakh crore in FY26, about 20% more than the year before. The model assumes the bank-rail base grows 15% into the switch year (₹2,000 lakh crore becomes ₹2,300 lakh crore) and 20% a year after, as money that moves faster pays more often.
• The hidden economy. India's shadow economy averaged 20.3% of GDP over 1991 to 2015 (Medina and Schneider, CESifo). With cash retired (Chapter 2) and the 30-day amnesty window open (item 7), the model assumes half of it joins the bank rails in year 1 (+10% of the base) and the rest in year 2.
• The same inflow widens GST: half the hidden economy formalising adds about 10% to today's ₹22.3 lakh crore of GST in year 1, and the same again in year 2.
• Cash moving onto the rails. About ₹40 lakh crore of cash circulates outside banks (Chapter 2). Once notes end, every payment it used to make becomes a bank credit, and each rupee crosses the rails every time it changes hands. After removing the overlap with the hidden economy above, the model adds about ₹150 lakh crore of retail credits in year 1 (estimate).
• Growth. The OECD's Tax and Economic Growth study (Johansson and others, 2008) ranks corporate tax as the most harmful to growth, then personal income tax, then consumption tax, with recurring property tax the least harmful. This plan keeps only consumption and property tax, plus a small charge on money received, so profits and wages are reinvested in full. The goal is double-digit growth within 5 years; the revenue model does not assume it, so any extra growth is a bonus.

Year-1 revenue (estimate):

What it replaces (estimate): ₹23.4 lakh crore of net direct tax, about ₹1.7 lakh crore of stamp duty and registration fees, and about ₹1.5 lakh crore of state vehicle tax and electricity duty, ≈ ₹26.6 lakh crore. Add the one-time contract offer to permanent staff (about ₹0.3 lakh crore, Chapter 12), the phone loan-loss provision (about ₹0.05 lakh crore, Chapter 4) and the learning fund (about ₹0.01 lakh crore, Chapter 25): ≈ ₹27.0 lakh crore needed. Fuel VAT, central fuel duty and state excise are kept whole by the per-unit levies, so they are not in this gap.

The gap and how it closes (estimate):

Year 2 adds the rest of the hidden economy and 20% base growth to the bank tax (about +3.5), a further 10% from formalising GST (+2.2), fewer posts (+0.6) and normal growth in the other lines (about +0.5). Year 3 adds 20% base growth (about +3.0) and normal growth elsewhere. From year 2 the flat rates raise more than the old system needed.

The Transition Buffer. The year-1 gap of about ₹3.8 lakh crore is met in full from the ₹3.85 lakh crore of public company sale proceeds (Chapter 12), so the tax switch itself needs no borrowing. The buffer also carries the one-time voluntary retirement package of Chapter 12, about ₹1.9 lakh crore in each of years 1 and 2 (estimate). After the year-2 surplus, that needs a time-bound bond of about ₹3.4 lakh crore, about 0.8% of GDP, repaid from the surpluses of years 3 and 4. It repays itself: every post vacated saves its salary every year for good, about ₹1.25 lakh crore a year. If the inflow is faster than assumed, less is borrowed.

GST at a flat 10%. After the 2025 rate cuts the weighted average GST rate is about 9.5% (SBI Research estimate), so a flat 10% is broadly revenue-neutral on today's base. Items at 18% and 40% get cheaper; items at 0% and 5% cost more. The poorest households are protected by the Chapter 23 cash transfer, not by product exemptions.

Technology and build cost. The deduction is a rule inside NPCI switches and each bank's core banking system, the same place TDS on cash withdrawals already runs. GSTN e-invoice IDs tag business-to-business credits for the 0.25% rate. Build cost is about ₹2,000 to 3,000 crore across banks (estimate), paid by the banks and recovered through a published fee per deduction.

Who wins. A salaried person keeps the full gross salary, minus a flat 0.5%, instead of up to 30% today. A company keeps all its profit instead of paying 25% corporate tax. The tax department shrinks to an audit and data unit.

Timeline

First 30 days:

• Announce the switch: it takes effect on the day the last notes stop being legal tender (month 12, Chapter 2), and only after the shadow test passes.
• Table the Bank Transaction Tax Bill (which also repeals the Income-tax Act, 2025 from switch day) and the flat-GST amendments. Table the three-taxes amendment as part of Chapter 28's Bill B.
• Open the 30-day amnesty portal.
• NPCI and RBI publish the open deduction API specification. Any bank or software vendor that passes the certification test can build to it (How the government buys).

Within 1 year:

• Months 1 to 6: both Acts passed; the GST Council approves the flat rate and the inclusion of fuel and electricity; Bill B is sent to the states, with a target of 15 ratifications in 60 days (Chapter 28).
• Months 6 to 9: banks and NPCI build and certify the deduction.
• Months 9 to 12: three months of live shadow collection, calculated but not charged, published monthly.
• Month 12: switch day. The Income-tax Act is repealed, and the BTT, flat GST, per-unit levies and property tax go live together.

Outcomes after year 1:

• The rates stay flat at 0.5% and 0.25%. The Transition Buffer draws in year 1, the flat taxes run a surplus from year 2, and the retirement bond is repaid in years 3 and 4.
• Property-tax collection rises from 95% to full collection, about ₹4.0 lakh crore.

Guardrails

• No revenue gap: the Income-tax Act is repealed only on the same day the BTT and flat GST go live.
• Shadow test: switch day comes only after 3 months of shadow collection confirm the base. The rates stay flat at 0.5% and 0.25%. A public monthly tracker compares the base with forecast; if it runs more than 15% behind for two quarters, posts and low-value spending are cut faster and capital works rephased, and the Transition Buffer covers the timing.
• Rate fixed in law: the retail rate stays at 0.5% and any change, up or down, needs a vote of Parliament. Each April the tracker publishes the rate the measured base could carry while still meeting that year's revenue target, so Parliament can cut it once revenue allows.
• Taxed once: the BTT is charged only on the receiving account. Own-account transfers, RBI, CCIL and exchange clearing are exempt.
• No fake invoices: the 0.25% rate applies only when the e-invoice matches a GST return filed by the supplier. A fake invoice costs 10 times the tax saved, found through faceless audits (Chapter 13).
• GST locked at 10%: the rate is written into law and changes only by a joint vote of Parliament and the GST Council.
• States held whole: each state gets its Finance Commission share of the BTT and never less in year 1 than its average income-tax share of the last 3 years. The Centre's top-up is worked out state by state, net of that state's property-tax gain and new GST share, and paid by the 10th of each month (Chapter 28).
• Open books: a monthly public dashboard shows collections by rail, rate and state.
• Honest property values: property is valued yearly by an independent area index (recent sales, rents and satellite data), never by the owner's declared price. To keep sale prices honest for the index, the state may buy any property at its declared sale price plus 10% within 30 days, after written notice and a hearing within those 30 days, paying within 30 days of the order (the safeguards the Supreme Court required in C.B. Gautam, 1993).
• Fair to owners: an owner can challenge a valuation once a year, with a decision in 30 days. The tax is auto-debited from the owner's bank account; any shortfall, or any amount an owner chooses to defer, becomes a charge on the property, settled on sale or inheritance. Deferred tax, unpaid penalties and refunds owed by the state all grow at compound interest at the repo rate plus 2%, compounded monthly, so time has the same fair price both ways. The owner sees a live cover ratio (the property's value divided by what is owed), with alerts at 2.0 and 1.5. At 1.25, while the property is still worth a quarter more than the debt, the state sells it by open digital auction and returns the surplus to the owner within 7 days; the cushion gives the sale the time it needs.

Limits to know

The flat 0.5% leaves a gap of about ₹3.8 lakh crore in year 1, met from sale proceeds, and runs a surplus from year 2 only if the hidden economy and cash join the rails as assumed; the Transition Buffer and the monthly tracker exist for exactly this. Transaction taxes also push some payments off the rails: Brazil's CPMF and Colombia's bank debit tax both saw people and firms reduce bank transactions to avoid them. With notes retired, that escape route is far narrower here, but the shadow test measures it before switch day. Abolishing stamp duty, vehicle tax and electricity duty and creating a national property tax change state subjects, so they need Chapter 28's Bill B ratified by at least 14 of the 28 states.

Sources: OECD: Tax and Economic Growth (Economics Department WP 620, 2008) · Medina and Schneider, Shadow Economies around the World (CESifo WP 6430) · UPI ₹314 lakh crore in FY26 · Direct tax FY26 (Business Today) · Net direct tax short of revised estimates (The Week) · Income-tax Act 2025 in force from 1 April 2026 (Business Today) · Payments value 2024, RBI Payment System Report (Business Standard) · FY25 payments growth (Angel One) · GST FY26 ₹22.27 lakh crore, +8.3% (Free Press Journal) · GST 2.0 fiscal impact (SBI Research, Moneylife) · Central fuel levies ₹3.27 lakh crore FY26 (A2Z Taxcorp) · States' petroleum tax ₹3.19 lakh crore 2023-24 (Factly) · State Finances: A Study of Budgets (RBI) · Banking cash transaction tax abolished (Business Standard, 2009) · RBI, Report of the Household Finance Committee (2017) · CAG, State Finances Audit Report 2023-24: stamps ₹2.20, excise ₹2.49, vehicles ₹1.06 lakh crore · UBS: financial assets 25.8% of Indian household wealth (Tribune) · Brazil's Senate ends the 0.38% CPMF, 2007 (MercoPress) · Brazil, CPMF (Law 9,311 of 1996) · New Zealand GST in force 1 October 1986 at 10% (NZHistory) · Bahamas VAT cut to 10% from January 2022 (VATupdate) · C.B. Gautam v. Union of India (1993) 1 SCC 78