Sikkim's Unique Tax Exemption: All You Need To Know
Sikkim has recently gained attention on social media, with users sharing posts about the state's special income tax exemption.
As the last date for filing income tax returns approaches on July 31, taxpayers are busy completing their returns, leading to an interesting observation on social media. The northeastern Indian state of Sikkim, known for its beautiful landscape and green initiatives, stands out with its unique income tax exemptions.
Sikkim has recently gained attention on social media, with users sharing posts about the state's special exemption. The residents of Sikkim enjoy a unique privilege that no other state in the country shares. This has sparked widespread discussion and interest among social media users.
"Forget Dubai! Someone get me a resident's status for Sikkim. Kitne mai milega bhai?" said Aditya Singhania in a post on X, formerly Twitter.
Why Is Sikkim Tax-Free?
Sikkim’s status as a tax-free state dates back to 1975 when it merged with India. The merger included special provisions to retain the state’s existing laws and status.
Initially, the state operated under its own tax regulations established in the Sikkim Income Tax Manual of 1948. However, in 2008, these local tax laws were repealed by the Union budget, leading to the introduction of Section 10 (26AAA) of the Income Tax Act, which provided tax exemptions for Sikkimese residents.
Under this section, residents of Sikkim are exempted from paying income tax on their earnings, regardless of the amount. This exemption extends to income earned from interest on securities, dividends, and other sources, highlighting Sikkim's unique tax status in India.
Additionally, the market regulator SEBI exempts Sikkim residents from the mandatory PAN requirement for investments in Indian securities and mutual funds.
What Is The Criteria?
The social media posts have grabbed eyeballs, but it's very important to know the criteria and truth behind the state being tax-free.
Let’s take a closer look at Sikkim’s tax system to understand why its residents enjoy this unique benefit.
There are specific criteria for this tax exemption:
The income must be generated within Sikkim; income from external sources does not qualify for this exemption.
A 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.
So, before you pack your bags to settle down in Sikkim, make sure you are aware of this.
Other North Eastern States Exempted
Apart from Sikkim, there are some other North Eastern states exempted from the Income Tax Act.
Under Section 10(26) of the Income Tax Act, members of Scheduled Tribes are provided with tax exemptions. This includes individuals residing in states such as Tripura, Mizoram, Manipur, Nagaland, Assam, and Arunachal Pradesh. Additionally, tribes living in the Ladakh region of the Union Territory of Jammu and Kashmir also benefit from this tax exemption.
