Tax: Keep What You Earn

The idea

It is payday for a young engineer in Pune. Her salary lands in her account, a tiny slice is settled automatically, and the rest is hers. Her tax is already done. Filing season is something she remembers from her parents' kitchen table, the late nights with forms and receipts. For her it is simply history, and she has complete peace of mind.

A few states away in Tiruppur, a garment maker closes his books for the year. Every rupee of profit stays in the business. So he does what builders do: he buys a new machine and hires ten more people.

That is the belief behind this chapter. I think tax works best when it works like a utility: quiet, fair, a simple service shared by citizen and state. When the rate is low and the same for everyone, honesty becomes the easy choice. Money that once hid comes into the open, where it can work, and honest people are rewarded for being honest.

So here is what I propose. India can fund itself with just three taxes: a flat 0.5% tax on money received into bank accounts (0.25% between businesses); a 0.4% property tax; and one flat 10% GST on what we consume, plus a 5% import duty. Income, company profits and capital gains stay with the people who earn them. We reward work, saving and building, and let consumption and idle land carry the load.

Is that a leap? Less than it sounds. India already built the rails for it. UPI and the banking system carry almost every rupee. What remains is the decision to use them.

Why now

Start with the money. Direct tax brought in a net ₹23.40 lakh crore in FY26, below its revised target. Raising it takes a costly machinery of returns, TDS, notices, audits and appeals, and even the new Income-tax Act carries that machinery forward. A simpler system can raise the same money at a fraction of the cost.

Then think about behaviour. With top marginal rates of 30% and more, hiding income is worth the risk. That is what feeds cash hoarding, benami property and two sets of books. Bring the rate down, low and flat, and that wealth walks back into the open economy.

Now look at the size of the opportunity. Indian payment systems carried ₹2,830 lakh crore in 2024. A very small charge on that flow can do the work of a large, costly tax system, simply and cooperatively.

And the base is about to grow fast. UPI alone carried ₹314 lakh crore in FY26, about 20% more than the year before. India's shadow economy has averaged about 20% of GDP (IMF and CESifo research). About ₹40 lakh crore of cash, roughly a ninth of GDP, still changes hands outside the banks (Chapter 2). When every rupee moves on bank rails, each time it changes hands it crosses the rails again: the wage becomes the shop's takings, the shop pays its supplier, the supplier pays wages. Money that moves faster pays more often. I believe that inflow, and the black money returning to the mainstream, carries a low, flat rate.

And growth follows the tax mix. The OECD's study of tax and growth across its members ranked 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 the two least harmful, plus a tiny charge on money received. Every rupee of profit a company keeps can be reinvested, and every worker keeps far more of each raise. China grew about 10% a year for three decades and Korea about 9% during their demographic windows, by turning savings into investment at speed. India's window is open now, and this is how I believe we reach double-digit growth.

And GST is nearly there already. After the 2025 cuts, its weighted average rate is about 9.5%, so one flat 10% rate is broadly revenue-neutral. The hardest part of the journey is behind us.

The big moves

Here is the path as I see it. Each step makes the next one easier, and the fine details are best settled by the people who will run it.

1. Retire income, corporate and capital gains tax. This is the first step, and it sets the rhythm for everything else. The new taxes go live on the same day the old ones retire, so revenue flows without a break. Income from before the switch is closed with one final return, and from then on the filing season is history.

2. Let the bank rails collect a small Bank Transaction Tax. On that same day, banks and NPCI begin deducting it automatically on money received, the same rate for every person and business. The rate is a flat 0.5% from day one. Business-to-business payments matched to an e-invoice pay 0.25%, so a thin-margin trader keeps its margin all the way down the chain.

3. One flat 10% GST on everything. Next, one rate replaces every slab, cess and luxury rate. Bringing fuel, electricity and newly built property inside GST lets businesses claim full input credit, so tax is charged once, on value added. We look after the poorest with direct cash support, which is simpler and better targeted than a maze of exemptions.

4. A modest property tax, fairly valued, kept local. Then comes the local leg: 0.4% of market value on all land and buildings, one rate for every owner and every place, the government included. No state, city or property type has a different rate, and there are no default exemptions or discounts. It is collected automatically from the owner's bank account, like any auto-debit, with no bills and no counters. It replaces stamp duty and registration fees, so buying a home becomes far cheaper up front, and every rupee stays with states, cities and districts.

5. A clean start, then a lasting promise. Finally, we open the door and then lock in the gain. A 30-day amnesty lets anyone declare any asset free of tax and penalty. After that, the three-tax rule goes into the Constitution, so the system stays this simple for every future government.

Today vs the new way

Here is how the money the state raises, and what tax costs people and firms, compares today and under the new way.

On money raised, the new way is about the same. On everything people and firms actually feel, from filing to disputes to tax on work and investment, it is better.

Proof it works

India has done this before. From 2005 to 2009, the Banking Cash Transaction Tax took 0.1% of large cash withdrawals, deducted by banks automatically. TDS on large cash withdrawals still runs inside bank systems today. The plumbing already exists; we are simply widening the pipe.

Brazil ran it for a decade. The CPMF, a tax of up to 0.38% on bank debits, ran from 1997 to 2007 and was one of Brazil's largest sources of revenue. A large, busy economy raised serious money from a very small rate.

One rate can fund a country. New Zealand launched its GST in 1986 at a single 10% rate on almost everything, food included, and still runs one rate with very few exemptions. The Bahamas funds its government from a 10% VAT, property tax and duties, leaving personal income and capital gains free of tax. The lesson I take from both is encouraging: a simple rate, applied widely, goes a very long way.

What success looks like

• In the first 30 days: the switch is announced, the laws are tabled, and the 30-day amnesty is open to every citizen.
• Within 1 year: switch day arrives. After one final return for the old year, every person and company is free of income tax returns for good.
• Within 1 year: the tax department becomes a small audit and data unit.
• By year 2: the flat taxes raise more than the old system needed, and from year 3 the surplus repays the small bond that carried the voluntary retirement offer (Chapter 12).
• After year 1: growth climbs towards double digits, the goal this tax mix is built for.

Guardrail ideas

Ideas to start the conversation, for the builders, experts and the public to shape together.

• Revenue flows without a break. The old taxes retire on the day the new ones go live, once a live shadow test confirms the numbers.
• The rates stay flat. 0.5%, 0.25% and the 0.4% property tax are fixed in law, the same everywhere, any change needs a vote of Parliament, and GST stays locked at 10%.
• A bridge for the switch, with an early-warning light. A Transition Buffer, funded by public company sale proceeds, covers the year-1 gap, with a small time-bound bond only for the one-time voluntary retirement offer. A public monthly tracker compares the bank-rail base with forecast. If it runs more than 15% behind for two quarters, the response is faster cuts in posts and in low-value spending and a rephased capital plan, never a quiet rate rise.
• Property tax collects itself, and the property backs it. The tax is auto-debited from the owner's bank account. If the account is short on the due date, or the owner chooses to defer, the amount becomes a charge on the property, settled at sale or inheritance.
• Time has a fair price, both ways. Deferred taxes and unpaid penalties grow at compound interest, for example the repo rate plus 2% compounded monthly, and refunds owed by the state grow at the same rate in the citizen's favour.
• A live cover ratio with a safety cushion. Every owner with a deferred amount sees one number on their phone, the cover ratio: the property's value divided by what is owed. Alerts arrive as it falls, for example at 2.0 and 1.5. At about 1.25, while the property is still worth a quarter more than the debt, the state sells it through an open digital auction and returns every rupee of surplus to the owner within 7 days. The cushion gives the sale the time it needs and protects the owner's equity.
• States are held whole. Every state receives in year 1 at least its average income-tax share of the last three years, with the Centre topping up any remaining gap every month.

FAQs

Q: Can a tax this small really replace income tax?

A: Yes, and you keep far more of what you earn while it does. In year 1 the flat 0.5% rate, the property tax, the wider GST and the savings raise about ₹23.2 lakh crore against ₹27 lakh crore needed, and the difference is met from public company sale proceeds. From year 2 the flat taxes raise more than the old system did, as the hidden economy, about a fifth of GDP, and today's cash join the bank rails and money moves faster.

Q: Is this fair to the poor, who pay no income tax today?

A: Yes, and the poorest households come out well ahead. Every citizen pays the same rate, and the poorest households receive ₹2,000 a month in cash (Chapter 23), far more than the added tax (see the table above).

Q: Will people simply go back to cash?

A: By then everyday life is digital, so the easy path is also the open one. The bank tax starts on the same day the last notes retire as legal tender (Chapter 2), so every payment flows through the rails from the first day.

The detailed blueprint for this chapter, a starting draft for the mission heads, industry and the private sector to refine, is in the Implementation Annex.