This Is India's Only Tax-Free State
Sikkim is the only tax-free state in India, where residents are exempt from paying income tax due to a special provision in the Constitution.
Did you know that there is one state in India where people don’t have to pay income tax, no matter how much they earn? The state is Sikkim, a beautiful region in the northeastern part of India. Sikkim is the only place in India where residents are exempt from paying income tax under Article 371F of the Indian Constitution.
Why is Sikkim Tax-Free?
The reason behind this unique tax rule goes back to history. Sikkim was once a princely state for over 330 years. After India’s independence in 1947, Sikkim became a protectorate of India. This meant that while India took care of Sikkim’s defense, foreign relations, and communication, Sikkim was still ruled by its king, the Chogyal.
In 1948, Sikkim created its own tax system, which stated that no one in Sikkim would have to pay taxes to the central government, no matter how much they earned. This tax system continued even after Sikkim joined India in 1975, becoming the 22nd state. However, the condition for this merger was that Sikkim would keep its old tax system from 1948.
How Does This Affect Sikkim's Residents?
Because of this special arrangement, people living in Sikkim do not have to pay income tax to the central government, regardless of their income. It is a rare and unique privilege enjoyed by Sikkim's residents. Additionally, citizens of Sikkim are not required to provide their Permanent Account Number (PAN) details when investing in Indian securities like shares or mutual funds.
Changes to the Tax Law in 2008
However, in 2008, some changes were made to the tax laws in Sikkim. The most important changes were:
- Income from Outside Sikkim: If a person in Sikkim earns money from properties located outside the state or from sources outside Sikkim, this income is no longer exempt from tax. In other words, such income must now be taxed.
- Marriage and Tax Exemption: Another change was that Sikkimese women who marry someone from outside the state are no longer eligible for the income tax exemption.
These changes mean that while Sikkim remains the only state in India without income tax for its residents, there are certain limits to the exemption.
Sikkim’s unique status makes it the only tax-free state in India. The history behind this tax system is rooted in the state’s royal past and its special relationship with India. While there have been some changes to the law over time, the majority of Sikkim’s residents still enjoy this rare privilege, making the state stand out in India’s tax structure.
