No income tax worries! Residents of this Indian state donĄ¯t pay taxes to the government
While the deadline for filing income tax returns was July 31, many Indians flocked to the govt website at the last minute to file the taxes. Those who couldnĄ¯t meet the deadline will end up paying penalties up to Rs 5,000.??However, did you know there is one state in India that is exempted from this process? Residents of this state donĄ¯t have to pay any tax to the government. It is none other than Sikkim.
Sikkim offers complete income tax exemption, regardless of earnings.?
Why is Sikkim exempted from Income Tax?
Residents of Sikkim enjoy a special exemption from paying income tax under Section 10(26AAA) of the Income Tax Act. This tax-free status is granted by a unique provision under Article 371F of the Indian Constitution, established during the state's merger in 1975. Although the state is small in size, its favorable tax policy has the potential to attract high-net-worth individuals and businesses, particularly those looking to optimize their tax liabilities.
Who all can avail the benefits of this unique provision?
Experts advise that meeting residency and other legal requirements is essential to fully benefit from this tax advantage.?However, there are specific situations where Sikkimese individuals are not exempt from paying taxes. For instance, if a resident earns rental income from properties outside the state or receives monetary benefits from external sources, they must pay taxes on that income. Additionally, Sikkimese women who married a non-Sikkimese after April 1, 2008, are not eligible for the tax exemption.
Also Read:?ITR alert: Will the Income Tax Return filing FY 2023-24 deadline get extended?
History of Sikkim and the events that led to the Income Tax exemption
Sikkim has a rich history, with the Namgyal dynasty ruling the region for over three centuries. It remained an independent kingdom until 1975, when it officially joined India. This transition from a princely state to an Indian state is a significant part of Sikkim's history. But how did Sikkim come to have its special tax status, and why do its residents enjoy a tax-free status?
During SikkimĄ¯s merger with India in 1975, various terms were set to safeguard the interests of its residents. A major condition was that Sikkim should retain its existing tax laws, which had been in place since 1948. The Indian government agreed, creating a special tax provision for the state.
This provision was designed to protect the socio-economic interests of the Sikkimese people. However, the law concerning income tax exemption for Sikkimese residents underwent some changes in 2008 when P Chidambaram was the Finance Minister. The govt introduced a new rule called Section 10(26AAA). Under the new rule, all income earned by Sikkim residents remains tax-free. Despite the removal of the old tax laws, Sikkimese people continue to benefit from income tax exemptions under the updated regulations.
