Ever wondered if there’s a place in India where the government cannot legally levy even ₹1 income tax, regardless of how much you earn? Believe it or not, such a state exists—and it’s not due to a lucky lottery, but a unique legal and historical status. Welcome to Sikkim: India’s only income tax-free state for native residents!What Makes Sikkim Tax-Free?The right for Sikkimese (native) residents to pay zero income tax stems from two powerful legal instruments:Article 371F of the Indian Constitution: Added in 1975 during Sikkim’s merger with India, this article protects the state’s unique legal and cultural identity. It ensures that Sikkim’s pre-merger laws—especially regarding taxation—remain valid even after joining the Union.Section 10(26AAA) of the Income Tax Act, 1961: This section clearly states that Sikkimese individuals (as per Sikkim Subject Regulation, 1961) are completely exempt—from salary, business, interest, investments, or dividend income. No central income tax has to be paid, irrespective of the amount.Who Qualifies for Tax Exemption?Only native Sikkimese: The exemption is not for every current resident, but for those recognized under the Sikkim Subject Regulation, 1961—essentially, those who were citizens before the merger and their descendants.Not for “outsiders”: People who moved to Sikkim after 1975, or don’t have Sikkim Subject status, must pay income tax as per central law.Do Sikkimese Need to File ITR?No filing required: Eligible Sikkimese do not need to file Income Tax Returns (ITR) for their income—no matter how large the sum—because their income is entirely exempted from Indian income tax rules.No PAN requirement for investments: For most financial transactions like mutual funds or securities, a PAN is not even mandatory for Sikkimese individuals under this status.Why Was Sikkim Granted This Special Status?Historical context: Sikkim was a separate kingdom until 1975. Its merger with India was carried out with specific conditions to protect local customs, rights, and economic structures.Legal safeguard: The special exemption prevents any economic disruption or injustice to Sikkimese who were never subject to Indian tax law before the merger.Key TakeawaysSikkim is the only Indian state whose recognized native residents don’t owe even a rupee in income tax and don’t file ITRs.This is not a loophole—it is a constitutional and legal privilege, unconnected to the income ceiling.Only those recognized as Sikkim Subjects and their descendants enjoy this right, upholding a promise made during the state’s merger with India.
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