Every taxpayer dreams of keeping his entire salary with him. There is a state in India where eligible residents are exempted from paying income tax. However, there is a special condition and historical reason behind it. Sikkim is the only state in the country where eligible residents are exempted from paying income tax. This is not a new government scheme or special incentive; Rather, it is a decades-old arrangement dating back to constitutional promises made at the time of the state’s merger with India.
**A special promise made in 1975**
Sikkim officially became the 22nd state of India in 1975. Before that, it was an independent monarchy under the Chogyal dynasty, with its own laws and tax system. At that time, residents there did not come under the purview of Indian income tax law. During the merger with India, the central government assured that many of the existing rights and legal framework of Sikkim would be retained. These protective provisions were recognized under Article 371(f) of the Constitution. To fulfill this promise, Section 10(26AAA) was added to the Income Tax Act.
**What does the Act say?**
According to the Income Tax Department, Section 10(26AAA) exempts eligible Sikkimese from income tax on income earned in the state. Subject to certain conditions, this exemption also applies to dividends and interest from securities. In simple words, eligible residents covered under this provision do not pay income tax on their fixed income. This is what makes Sikkim different from all the other states of the country.
**Who gets this benefit?**
This exemption is not available to every person living in Sikkim. This benefit is available only to those people who are considered ‘Sikkimese’ under the Act. This category includes persons whose names were recorded in the Sikkim Subject Register before April 26, 1975, as well as certain eligible descendants; In other words, this tax exemption is given not just on the basis of living there, but on the basis of historical and legal qualifications.
Can anyone get tax exemption by going and settling in Sikkim?
This is the biggest misconception. Even if a person buys a house in Sikkim, moves there for a job or lives in the state for many years, he does not automatically get income tax exemption. A software engineer from Delhi, a banker from Mumbai or a professional from Bengaluru, despite living in Sikkim, will continue to pay tax under the normal income tax rules. A person does not get this special exemption merely by being a resident of the state.
