Why This Indian State is Exempted from Income Tax?

The Income Tax Act of 1961 mandates that Indian residents pay income taxes. Under section 10(26AAA) of the Income Tax Act of 1961, the original Sikkim residents are free from paying income tax.

Article 371A of the Indian Constitution grants special status to all of the Northeastern states. This is the rationale behind the state's ban on out-of-state residents purchasing real estate. For the uninitiated, the Supreme Court ruled on January 13 that all Sikkimese citizens should be eligible for the tax exemption advantage stipulated in Section 10 (26AAA).

Old Indian settlers are entitled to tax exemption, regardless of whether their names are recorded in the registry under the Sikkim Subjects Regulations, 1961, according to a law that was passed by the justices M R Shah and B V Nagarathna's bench.

Previously, only people who held a Sikkim subject certificate and their descendant's certificate were exempt from the law. After then, he was regarded as having Indian citizenship under the 1989 Sikkim Citizenship Amendment Order. However, 95% of the population was exempt from paying taxes after the Supreme Court gave Indian citizens who had lived in Sikkim up until April 26, 1975 (the day before Sikkim joined India), the status of Sikkimese natives.

By offering tax exemptions, Section 10 (26AAA) seeks to lessen the burden on taxpayers. This section has concentrated on calculating an "exempted income," or revenue that is not included in computations of total income.

Sikkim was founded in 1642, and in 1950, as a result of the Indo-Sikkim Peace Agreement, Sikkim was made a protected state of India. The state was integrated with India in 1975. Chogyal was Sikkim's monarch at the time. In 1948, he was awarded the Sikkim Income Tax Manual. As a result, Sikkimese individuals were forced to comply with the terms of the income tax exemption when India and India joined.

In light of this, Sikkim's native citizens are free from income tax under section 10 (26AAA) of the Indian Income Tax Act.

Since 1950, Sikkim residents have been spared from paying taxes. It is believed that old settlers from before Sikkim and India merged are listed in the register kept in accordance with Sikkim Subjects Regulations. The Income Tax Act, of 1961 was amended to include Section 10 (26AAA) on the day Sikkim became subject to the IT Act.

On February 1, 2023, when she presented her fifth national budget, Finance Minister Nirmala Sitharaman captured the nation's interest. She recently changed the tax structure, going from six to five tax levels. Sikkim's tax laws have not altered, though.