No income tax! Residents of this Indian state pay zero tax to the government. Here’s why

With the deadline for filing income tax returns just around the corner, millions of Indians are busy filing them. However, did you know that residents of one Indian state are exempted from this process and don’t have to pay any tax to the government? Sikkim is the only state in India where residents do not have to file income tax returns or pay any income tax at all.

Sikkim has a fascinating past, marked by the reign of the Namgyal dynasty for over three centuries. It was an independent kingdom until 1975 when it became part of India. This transition from a princely kingdom to an Indian state is a historical chapter in Sikkim’s history. But how did Sikkim get this special tax status, and the state’s residents have to pay no tax to the government? Know all about it.

No income tax! Residents of this Indian state pay zero tax to the government. Here’s why

When Sikkim merged with India in 1975, several terms and conditions were attached to protect the interests of its residents. One key condition was that Sikkim should be allowed to continue with its existing tax laws, which were formed in 1948. The Indian government agreed to this, creating a unique tax provision for the state.

Unlike most of India, residents of Sikkim enjoy a special exemption from paying income tax under Section 10(26AAA) of the Income Tax Act.

This unique provision was established to preserve the socio-economic interests of the Sikkimese people. However, the law regarding income tax exemption for Sikkimese residents saw a few changes in 2008.

That year, when P Chidambaram was the Finance Minister, the Indian government updated the tax rules and eliminated Sikkim’s old tax laws. To ensure that Sikkimese residents still didn’t have to pay income tax, the government introduced a new rule called Section 10(26AAA). According to this new rule, all income Sikkim residents earn is tax-free. So, even though the old tax laws were removed, Sikkimese people still benefit from not paying income tax under new laws.

However, there are a few circumstances in which a Sikkimese is not exempted from paying tax. If a resident of Sikkim earns rental income from properties outside the state or gains any monetary benefits from sources located outside the state, they will have to pay taxes on that income. Additionally, Sikkimese women who married a non-Sikkimese after April 1, 2008, are not exempted from paying income tax.

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