Priyanka Tiwari
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Suspense crime, Digital Desk : In a country where income tax is a fundamental part of the financial system, one state stands out as a remarkable exception: Sikkim. Residents of this Himalayan state enjoy a unique privilege granted by the Indian Constitution—they are completely exempt from paying income tax.
This isn't a temporary loophole or a special economic zone policy; it is a permanent constitutional provision that has been in place for decades.
The Historical Roots of a Unique Tax Status
The origin of this tax exemption lies in the historic agreement through which the Kingdom of Sikkim merged with the Union of India in 1975. To protect the rights, interests, and distinct identity of the Sikkimese people, Article 371F was incorporated into the Indian Constitution. This special provision safeguarded various pre-existing laws and traditions of Sikkim, including its taxation rules.
Under these old laws, the residents of Sikkim were not required to pay income tax. This protection was formalized under Section 10(26AAA) of the Income Tax Act, 1961. This section explicitly exempts the following income for a "Sikkimese" individual:
- Income generated from any source within the state of Sikkim.
- Income earned from dividends or interest on securities from anywhere in the world.
A Landmark Supreme Court Ruling Expands the Benefit
For years, the definition of "Sikkimese" for tax purposes was limited to individuals who held a Sikkim Subject Certificate (or their descendants), which was issued before the merger. This created a division, excluding many "old Indian settlers"—families of Indian origin who had lived in Sikkim for generations but did not hold the certificate.
This disparity was challenged in court, leading to a landmark judgment by the Supreme Court of India in January 2023. In the case of the Association of Old Settlers of Sikkim & Ors. vs. Union of India, the apex court ruled that excluding these long-term residents was discriminatory and unconstitutional.
Following the court's direction, the central government amended the Income Tax Act. Now, the tax exemption has been extended to include all Indian citizens who were domiciled in Sikkim on or before the date of its merger, April 26, 1975.
This means that whether an original inhabitant or an old settler, any resident who meets the domicile criteria can earn crores without any income tax liability, making Sikkim a truly unique state within the Indian financial landscape.
