Residents of Sikkim enjoys income tax (IT) exemption as per Section 10 (26AAA) of the Indian IT Act. The Indian government assured Sikkim that it could keep its own tax structure when it merged with India in 1975. This special consideration was made to preserve the state’s existing tax system, in which its residents were not subject to the Indian Income Tax Act. At that time, the Government of India exempted Sikkim from paying Income Tax.

Income Tax Exemption For Sikkim: What Is The Act?

Under the Section 10(26AAA) of the IT Act, any Sikkimese individual earning any income from any source in Sikkim, including dividends and interest on securities, is exempt from income tax. The exemption includes the people who lived in Sikkim before it became a part of India.

Who Is “Sikkimese”?

• An individual, whose name is recorded in the register maintained under the Sikkim Subjects Regulation, 1961 read with the Sikkim Subject Rules, 1961 (hereinafter referred to as the “Register of Sikkim Subjects”), immediately before the 26th day of April 1975.
• An individual, whose name is included in the Register of Sikkim Subjects by virtue of the Government of India Order No. 26030/36/90-I.C.I., dated the 7th August 1990 and Order of even number dated the 8th April 1991.
• Any other individual, whose name does not appear in the Register of Sikkim Subjects, but it is established beyond doubt that the name of such individual’s father or husband or paternal grandfather or brother from the same father has been recorded in that register.

However, this exemption doesn’t apply to a Sikkimese woman who marries a non-Sikkimese person on or after April 1, 2008.

A Brief History

In 2008, the Indian government abolished the Sikkim Tax Act, freeing the state’s residents from paying income tax. This exemption was made via Section 10(26AAA) of the IT Act, in order to preserve Sikkim’s special status under Article 371F of the Indian Constitution.

In 2013, the Association of Old Settlers of Sikkim (AOSS) took the matter to court, arguing that Indians who settled in Sikkim before 1975 should also be exempted from the Income tax. The Supreme Court ordered a change to the law, extending the tax exemption to all Indian citizens living in Sikkim up to April 26, 1975.