India today stands at a curious crossroads. On one hand, it celebrates becoming the world’s fastest-growing major economy, a startup powerhouse, and a magnet for global capital. On the other, a growing number of India’s most compliant, wealth-creating citizens – entrepreneurs, professionals, and High Net-Worth Individuals (HNIs) – are quietly planning their exit.
This disenchantment is not ideological. It is deeply practical.
For many HNIs, the issue is no longer the quantum of tax paid, but the manner in which the taxpayer is treated – with default suspicion, endless scrutiny, retrospective demands, and a system that punishes compliance while rewarding opacity.
A System That Distrusts Its Best Contributors
A recent example that resonated strongly across India’s startup and HNI community was shared by Rohit Shroff, a Bengaluru-based founder. His experience is telling.
Over the last 12–18 months, across his businesses, Shroff paid over USD 500,000 (₹4 crore) in GST and income tax. He did not evade. He did not delay. He complied fully.
Yet, despite this, he found himself subjected to repeated scrutiny by multiple tax authorities, overlapping notices, and compliance demands that treated him less as a contributor and more as a suspect.
His observation struck a nerve:
“Only 4–5% of Indians pay income tax, yet compliance pressure is disproportionately applied to those already inside the formal system.”
The irony is painful. Those who remain outside the tax net operate freely. Those inside are pursued relentlessly.
Compliance by Coercion, Not Confidence
One of the most damning aspects of India’s tax ecosystem is that compliance is often driven by fear, not fairness.
Many entrepreneurs and HNIs comply not because the system is efficient or just, but because:
- Challenging a notice is costlier than paying it
- Litigation can drag on for years or decades
- Tax officials wield discretionary power with minimal accountability
As Shroff bluntly put it, businesses comply because “it is cheaper to submit than to fight.”
This is not the hallmark of a mature, investor-friendly economy.
The Ghosts of the Past: Retrospective & Delayed Notices
The second example is even more alarming – and far more common.
A taxpayer received a notice demanding ₹17 lakh for an Income Tax Return allegedly not filed in 2012 – almost a decade later.
Such cases raise uncomfortable questions:
- How can a system claim digital efficiency yet allow files to resurface after tens of years?
- Why should citizens be punished for administrative failures or record lapses?
- How many individuals even retain financial records after a decade, especially when there was no notice at the time?
This is not tax enforcement.
This is institutional amnesia weaponised against citizens.
The Psychological Cost of Living Under Constant Scrutiny
Beyond money, the tax system imposes a psychological tax on HNIs.
Every notice carries:
- Uncertainty
- Anxiety
- Fear of attachment, freezing of accounts, or prosecution
- Reputational risk
Even when the taxpayer is ultimately vindicated, the process itself becomes the punishment.
For entrepreneurs, this creates a chilling effect:
- Growth attracts scrutiny
- Scale attracts suspicion
- Success invites intervention
Instead of rewarding expansion, the system implicitly asks:
“Why are you making so much money?”
Growth Is Penalised, Not Encouraged
India frequently speaks of wealth creators, but treats them like wealth hoarders.
Key issues troubling HNIs include:
- Frequent changes in tax interpretation
- Overlapping jurisdictions (IT, GST, ED, local authorities)
- Aggressive targets imposed on tax officers
- Presumption of guilt instead of innocence
Unlike global best practices, there is no concept of “trusted taxpayer” status that offers reduced scrutiny to consistently compliant individuals.
In India, compliance does not buy peace – it invites more paperwork.
Why Dubai, UAE, and the US Look Increasingly Attractive
The steady migration of Indian HNIs to Dubai, Singapore, the UK, and the US is not driven solely by lower taxes.
It is driven by predictability and dignity.
Dubai / UAE
- Zero personal income tax
- Clear residency-linked tax rules
- No retrospective demands
- Business-friendly regulators
- Swift dispute resolution
United States
- Higher taxes, but:
- Clear statutes
- Strong taxpayer rights
- Independent courts
- Due process before enforcement
Ironically, many HNIs are willing to pay more tax abroad – as long as the system is transparent and respectful.
The Silent Exodus and Its Cost to India
When HNIs leave, India loses far more than tax revenue.
It loses:
- Capital formation
- Angel and VC funding for startups
- Job creation
- Philanthropy
- Long-term institutional wealth
More dangerously, it sends a signal to the next generation:
“Build in India, but exit early – or build elsewhere.”
That is a dangerous narrative for a country aspiring to be a global economic leader.
Why Only 4 – 5% Pay Income Tax – and Why That Matters
India’s narrow tax base is often cited as justification for aggressive enforcement.
But this argument collapses under scrutiny.
The reason only 4–5% pay income tax is structural, not moral:
- Large informal economy
- Agricultural income exemptions (often misused)
- Political reluctance to widen the base
- Poor enforcement outside the formal sector
Instead of expanding the base, the system squeezes the same compliant few harder each year.
This is fiscally lazy and socially unjust.
What Needs to Change: Rebuilding Trust with HNIs
If India wants to retain its wealth creators, reforms must go beyond slogans.
1. Introduce “Trusted Taxpayer” Status
- Reduced audits for consistently compliant taxpayers
- Fast-track dispute resolution
- Single-window communication
2. End Retrospective Harassment
- Hard statutory limits on reopening cases
- Automatic closure of old years unless fraud is proven
- Accountability for delayed notices
3. Separate Revenue Targets from Enforcement
- Tax officers should not be incentivised by collections alone
- Quality of assessment should matter more than quantity
4. Simplify Compliance
- Reduce filings
- Harmonise GST and income tax data
- Eliminate duplicate reporting
5. Shift from Suspicion to Partnership
- Treat HNIs as stakeholders in nation-building
- Encourage voluntary compliance through certainty, not fear
Patriotism Cannot Be Forced Through Paperwork
As Rohit Shroff candidly stated, his decision to move abroad is “one of practicality, not patriotism.”
That sentiment is spreading.
People do not abandon their country lightly.
They leave when the system makes them feel unwelcome in their own success.
India does not lack entrepreneurial talent.
It lacks institutional empathy.
Conclusion: Taxation Must Fund the Nation, Not Fracture It
A tax system should:
- Raise revenue
- Encourage growth
- Uphold fairness
- Inspire confidence
When it instead creates fear, distrust, and exit planning, it has lost its moral legitimacy.
If India truly wants to be a global economic powerhouse, it must understand one simple truth:
Wealth creators are not adversaries of the state.
They are its strongest allies – if treated with respect.
Retaining India’s HNIs is not about lowering taxes.
It is about restoring trust.
And trust, once broken, is far harder to tax back.
