By News Desk 
Paying income tax is a legal obligation for every Indian citizen falling within the designated tax slabs. Each year, during the presentation of the Union Budget, people across the country eagerly watch for potential changes in these slabs. However, very few are aware that there’s one Indian state where citizens are entirely exempt from paying income tax. This state is not bound by the standard tax regulations applicable elsewhere in the country.
Sikkim: India’s Only Income Tax-Exempt State
Nestled in the northeastern part of India, Sikkim holds the unique distinction of being the only state where residents are not required to pay income tax. This exemption is granted under Section 10 (26AAA) of the Indian Income Tax Act. Historically, Sikkim was an independent kingdom for over 330 years before formally merging with India in 1975, becoming the country’s 22nd state.
What makes Sikkim’s union with India distinct is the special agreement under which its existing tax system was allowed to remain intact. Even after becoming part of India, the state retained its original tax structure, thereby exempting its residents from paying income tax, regardless of how much they earn.
Special Constitutional Privileges
In 2008, Section 10 (26AAA) was introduced into the Income Tax Act, granting income tax exemption to individuals domiciled in Sikkim as of April 26, 1975. This provision ensures that residents earning money from any source, including interest or salary, are not required to pay income tax — provided they meet the domicile criteria set forth in this clause.
Who Does Not Qualify for the Exemption?
While this tax benefit is significant, there are specific conditions where it does not apply:
- Non-native residents: Individuals who move to Sikkim from other states are not eligible for this exemption.
- Earnings outside Sikkim: Sikkimese individuals earning income in other states of India are required to pay tax on that income under regular tax rules.
A Matter of Cultural Identity and National Debate
For the people of Sikkim, this tax exemption is more than just a financial privilege — it represents a crucial part of their cultural heritage and political identity. However, elsewhere in the country, the provision has sparked debate over tax equality and uniformity in financial obligations.
Ultimately, the tax-free status of Sikkim is rooted in its distinct historical journey and the terms of its integration into the Indian Union. It remains a rare example of how regional history and federal agreements can shape modern legal and financial landscapes.