India’s Most Dangerous Economic Idea Is Also Its Most Timely One

Every few years, a budget comes along that tweaks rates, shuffles slabs, and declares victory. This year presents something rarer: an opportunity to reset assumptions. India is implementing long-delayed labour reforms, navigating sharpening geopolitical fault lines, and watching global growth fragment along political lines. In such moments, orthodoxy is a liability. Boldness, if calibrated, is an advantage.

A radical rethink of personal income taxation even pushing it close to zero for the overwhelming majority of citizens sounds reckless only if viewed through the narrow lens of static revenue accounting. Viewed strategically, it may be the single most powerful growth lever available to India today.

Personal income tax in India is economically modest but psychologically enormous. Fewer than 2% of Indians pay meaningful income tax, yet its complexity shapes behaviour far beyond that group. It distorts labour choices, encourages informality, and perpetuates a low-trust relationship between the state and its most productive citizens.

Meanwhile, India’s revenue mix has quietly transformed. GST collections now exceed ₹20 lakh crore annually. Capital markets have deepened, digital compliance has improved, and consumption taxes have become the real fiscal workhorse. Income tax, once central, is now structurally less critical. That creates room, both politically and fiscally for experimentation.

The goal should not be abolition, but inversion. Instead of taxing a few heavily and many not at all, India should tax almost everyone lightly. A wide base with token rates changes behaviour far more effectively than a narrow base with punitive ones.

Consider a simple framework: zero tax up to ₹7 lakh; 1% between ₹7–12 lakh; 2% between ₹12–20 lakh; 5% between ₹20–50 lakh; 10% up to ₹2 crore; and 15% beyond that, with no surcharges or cesses. Under such a regime, more than 90% of taxpayers would owe less than ₹25,000 a year. Evasion would become irrational. Filing would become routine.

India’s immediate constraint is not supply; it is demand. Real wages have lagged asset prices, and labour reform carries transitional pain. Putting modest but widespread purchasing power back into consumers’ hands is not populism, it is macroeconomic insurance.

Markets would respond enthusiastically. Asset prices would rise. Inflation would edge higher. These are not side effects; they are signals of revived animal spirits. Unlike deficit-financed giveaways, this stimulus is earned, distributed, and self-correcting.

Low taxes do not merely reduce burdens; they alter incentives. When the cost of honesty is low and enforcement is predictable, compliance follows. The real prize here is not Year One revenue, but a decade-long expansion of the formal tax base that is cleaner, broader, and more resilient.

Even under pessimistic assumptions, personal income tax collections may fall by ₹2–3 lakh crore initially, roughly 1% of GDP. That loss is meaningful, but manageable for an economy growing near 7%. Much of it would be clawed back through higher GST collections, buoyant capital gains taxes, and improved compliance. Inflationary pressures would be demand-led and amenable to calibrated monetary response.

As advanced economies retreat into protectionism and fiscal caution, India has a chance to tell a different story: one of confidence, trust, and growth-first policy. Expanding the tax base while cutting the tax burden would not merely dominate headlines, it would redefine India’s economic brand.

The most dangerous economic ideas are often dismissed before they are debated. India can afford that complacency no longer. A near-zero personal income tax regime is not about zero revenue. It is about zero fear and a wager that growth, not coercion, is the sounder foundation of the state.