India's Only Tax-Free State: Find Out Why Residents Of THIS State Enjoy Complete Tax Exemption

Sikkim residents have a special privilege that sets them apart from the rest of India—they don’t have to pay income tax, thanks to an exemption under Section 10(26AAA) of the Indian Income Tax Act.

(All images credit: Freepik)

When Sikkim joined India, the government assured the state that it could keep its existing tax system. As a result, Sikkim residents were exempt from Indian income tax, honoring the promise made during the merger.

Under Section 10(26AAA), income earned in Sikkim, or by Sikkim residents from sources like dividends and interest on securities, is exempt from income tax. This benefit is available to those living in Sikkim before it became part of India.

In 2008, the Union Budget replaced the Sikkim Tax Act and introduced the income tax exemption for Sikkim residents under the Income Tax Act. This move preserved Sikkim’s unique status as outlined in Article 371(f) of the Indian Constitution.

In 2013, the Association of Old Settlers of Sikkim (AOSS) filed a petition, as those who settled in Sikkim before 1975 weren’t included in the exemption. This led to a landmark decision by the Supreme Court.

Following the petition, the Supreme Court amended Section 10(26AAA) to include Indian settlers who had lived in Sikkim before April 26, 1975, granting them the same tax exemption as Sikkimese residents.

This tax exemption provides Sikkim residents with a financial edge over other states, making it a unique feature of Sikkim’s integration into India, while continuing to respect its original tax system.