‘Pay Zero Tax,…’: Sikkim’s Special Tax Status Draws Attention Amid July 31 ITR Deadline; Everything You Need To Know

‘Pay Zero Tax,…’: Sikkim’s Special Tax Status Draws Attention Amid July 31 ITR Deadline; Everything You Need To Know | Pixabay

With just one day remaining to file Income Tax Returns (ITR) by July 31, 2024, it’s worth noting that one Indian state stands out with unique income tax exemptions.

Sikkim, the northeastern state of the country enjoys a special exemption from income tax. The residents of this state has a unique privilege that no other state in the country shares.

In a latest development, as the deadline for filling the ITR approaches, many taxpayers are busy preparing their paperwork’s and calculating about their tax liabilities, but Sikkim has recently gained a spotlight on the social media platforms where users are sharing posts about the state’s unique income tax exemption.

In a social media post shared on the platform X, formerly Twitter, an X user wrote, “Forget Dubai! Someone get me a residents status for Sikkim Kitne mai milega bhai?”

Another user added, “Pay zero tax.. yes you read it right!! Become a Sikkim resident.”

“The next logical step is to marry someone from Sikkim, or just commit tax fraud,” added another X user.

These are just a few of the many post shared on the social media platform. Let’s take a closer look at the state’s tax system and know why its residents enjoy this unique benefit.

Sikkim’s status as a tax-free state dates back to 1975 when it merged with India. The merger was accompanied by special provisions to retain the state’s existing laws and status.

Although at the initial phase, the state was operated under its own tax regulations established in the Sikkim Income Tax Manual of 1948. But, in 2008, these local tax laws were repealed by the Union Budget, and Section 10 (26AAA) of the Income Tax Act was introduced which introduced the tax exemption for Sikkimese residents.

Under this section, the residents are exempted from paying income tax on their earnings, regardless of what the amount and extends to income earned from interest on securities, dividends, and other sources.

But there are also certain criteria to it:

1. The income must be generated within Sikkim. Income from external sources does not qualify for this exemption.

2. Sikkimese woman who marries a non-Sikkimese man may lose her tax exemption status, a condition upheld by the Supreme Court in a 2008 ruling.

In addition to this, market capital regulator SEBI exempts Sikkim residents from the mandatory PAN requirement for investments in Indian securities and mutual funds.

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