No Income Tax Burden To This Indian State. Find Out Why (Image: Unsplash/Debarghya Meikap)

All the citizens of India whose income falls under the taxable groupings are being demanded to pay income tax every year. However, Sikkim remains as lone tax-free State in India. Article 371(F) of the Indian Constitution gives special status to its residents to be exempted from payment of income tax.

Sikkim, a small state in northeastern India, merged with India in 1975. The merger was based on the condition the State would retain its old laws and special status. Thereby, the State followed its own Sikkim Income Tax Manual 1948, which governed the tax laws since 1975. As per this rule, no native residents required to pay taxes to the Centre.

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However, in 2008, Sikkim’s tax laws were repealed by the Union Budget. But the Budget inserted section 10 (26AAA) that year which facilitated the State’s residents to be exempted from payment of taxes and this  tax-free status was allotted to over 94% of Sikkimese people.

Under Section 10(26AAA) of the Income Tax Act, 1961, the income of any resident of Sikkim is outside the consideration of tax which includes income from interest on securities and dividends. Aside from that, market regulator the Securities and Exchange Board of India (SEBI) has exempted Sikkim residents from the mandatory PAN requirement for investments in the Indian securities market and mutual funds.

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Meanwhile, the Supreme Court’s judgements has also held that Sikkimese people who were residents before Sikkim’s merger with India are also eligible for this exemption. Prior to court’s verdict, I-T exemption excluded, “old Indian settlers”, who had permanently settled in the state before 1975. In addition, the top court has also repealed the exclusion from the exempted category Sikkimese woman who marries a non-Sikkimese man after April 1, 2008, as being “ultra vires Articles 14, 15, and 21 of the Constitution of India,” Livemint reports.