A Case for Removing Personal Income Tax

An Alternative to Personal Income Tax

Hasn't The 'Resilient Middle Class' Suffered Enough?

The Current Scenario

The major bulk of India's income tax collection comes largely from the salaried, Middle Class section of society. Of our population of around 120 Crore citizens, only about 3-4 Crore individuals pay personal income tax, the majority of whom fall between the tax bracket of 3 Lac to 12 Lac per annum.

While the introduction of a tax rebate on salaries up to 5 Lac per annum in this year's Annual Budget comes as a major relief for a huge section of the Middle Class, the truth is that an individual making upwards of 5 Lac per annum still does not have enough disposable income after his salary is deducted at source (TDS).

Most reports state that almost 26% of India's population is below the poverty line, meaning they are exempt from the applicability of income tax. While the poor are exempt anyway, the uber rich find loopholes through investments in order to evade taxes.

Who is the scapegoat? Why, the ever-resilient, ever-persevering Middle Class ofcourse!


The Inherent Problem

The key issue here is that the prosperity of the Middle Class is grossly overestimated. The aspirations of an average middle class family is to stand on their own two feet and secure financial stability for their children's future. This cannot be done when the entire weight of responsibility for the welfare of the rest of the population is on the shoulders of the middle class. They have seen struggle, continue to struggle, while having seen and experienced the life of someone who is more privileged and financially well off than they are. Such is their curse.

A Viable Alternative

Since 2014, Prime Minister Narendra Modi has taken several positive steps in order to digitalise India's paper-based economy. From encouraging cash-less transactions to expanding the scope of banking services to the doorstep of rural households, the efficient implementation of these schemes has brought about a rampant increase in the number of digital transactions taking place throughout the country.

This is where economies of scale can play a huge role in substituting conventional methods of taxation with a new, modern system that is both fair & transparent. 

The Alternative: A small minuscule percentage charged on each and every digital transaction. 

Of course, given the current status of the bulk of digital transactions, ie, Rs 245 Crores, this method will have to wait in the pipeline, at least for now. Nonetheless, since the Govt's decision to demonetise 500 and 100 rupee currency notes, the bulk of these transactions has increased by a phenomenal 300%. Going by this trend, India will be able to implement this sytem within the span of a decade or so.

A small tiny percentage charged on each transaction would leave the individual/organisation making the transaction unharmed, while creating a transparent system of taxation where issues of compliance with regulations, complexity of taxation & issues in collection can be effectively eliminated.


Possible Exceptions

A flat rate across the board, irrespective of the nature of the transaction that is being taxed, would obviously make the system unfair on both private individuals as well as corporations. Providing exemptions under this system to transactions made by various not-for-profit organisations, organisations engaged with social work, as well as the transactions made by senior citizens will enable the creation of a free, fair and equal system of taxation.


For too long the Middle Class has borne the brunt of sustaining India's increasingly welfare-oriented economy. It is high time that this burden be redistributed among the masses that live off a system that is sustained by hard-working, grounded and honest tax paying citizens.