Former Reserve Bank of India (RBI) Governor, Raghuram Rajan, has proposed the idea of implementing state income tax in India. In a webinar organized by the Chennai International Centre, Rajan suggested that states should have the authority to levy their income tax in addition to the existing taxes collected by the central government. He believes that this move could help in providing more financial autonomy to the states and reduce their dependence on the center for revenue. Rajan also highlighted the importance of decentralization and empowering states to make their fiscal decisions. The former RBI governor’s proposal comes at a time when the Indian economy is facing challenges due to the COVID-19 pandemic. The idea of state income tax is not new, and it has been discussed in the past as well. However, implementing such a tax system would require significant changes in the current tax structure and careful consideration of its implications on the economy. As the debate on fiscal federalism continues in India, Rajan’s suggestion adds a new perspective to the discussion. It remains to be seen how policymakers and experts will respond to this proposal and whether it will gain traction in the coming days.