As the deadline for ITR filing in 2025 approaches, taxpayers across India are busy calculating income, deductions, and liabilities. But in the state of Sikkim, the process is remarkably different. Here, eligible native residents pay zero income tax—regardless of how much they earn. Backed by Article 371(F) of the Constitution and Section 10(26AAA) of the Income Tax Act, this rare financial privilege makes Sikkim the only income tax-free state in the country. Here’s why this exemption exists and who qualifies.
Why Sikkim residents don’t pay income tax
The income of native Sikkimese individuals is completely exempt from tax under the law. This means a person living in Sikkim can earn large sums of money—whether from salary, business, or investment—and still pay zero income tax.
The exemption is not a policy benefit, but a legal right, granted under Article 371(F) of the Constitution and Section 10(26AAA) of the Income Tax Act.
The historical reason behind Sikkim’s tax-free status
When Sikkim joined the Indian Union in 1975, it came with special conditions. At the time of the merger, Sikkim had its own administrative and tax laws. To respect this, the Government of India ensured that these laws would remain in place. Article 371(F) was added to the Constitution to safeguard this arrangement.
As a result, native Sikkimese residents were kept outside the scope of Indian income tax laws, and that continues till today.
What does the income tax act say?
Section 10(26AAA) of the Income Tax Act, 1961, states that the income earned by a Sikkimese individual is exempt from tax. This includes:
- Salary income
- Business income
- Capital gains
- Dividends
- Interest from securities
There is no upper income limit to this exemption. Whether a person earns Rs 5 lakh or Rs 5 crore, the rule stays the same.
Who is considered a native Sikkimese?
This tax relief does not apply to everyone living in Sikkim. It is available only to those individuals who:
Were recorded as Sikkim Subjects under the Sikkim Subjects Regulation, 1961
Are descendants of these original residents
New migrants or settlers, even if they live in Sikkim, are not eligible for the exemption.
What economic advantage does this offer?
Living in a tax-free state allows native residents to:
- Retain more of their earnings
- Save and invest freely
- Avoid the burden of tax planning or deductions
In short, it gives them a direct increase in disposable income, something not seen in any other part of India.
How is Sikkim different from other tax-free provisions in India?
India does offer some tax exemptions under specific heads, such as:
- Agricultural income
- Interest from NRE accounts
- Scholarships
- HUF income
- Share of profit from partnership firms
But these are limited and conditional. Sikkim is the only state where an individual’s entire income can be exempt based on domicile and heritage.
Sikkim’s permanent tax identity
The tax-free status of Sikkim is not temporary. It is backed by constitutional provisions and protected by law. That means it cannot be changed by ordinary policy decisions or annual budgets.
This makes Sikkim one of the rare places in the world where residents can earn as much as they want and still not fall under the income tax net.
Sikkim stands out as a remarkable example of constitutional protection and financial autonomy. In a country where tax planning is a major concern for most individuals, native Sikkimese continue to enjoy the benefits of zero tax liability—a privilege rooted in history and protected by law.
