- By Aditya Pratap Singh
- Wed, 31 Jul 2024 12:44 PM (IST)
- Source:JND
Sikkim Special Tax: Sikkim, one of the North Eastern states, is unique in that it is exempt from income tax under Section 10(26AAA) of the Indian Income Tax Act. One of the key assurances given to Sikkim at the time of its merger with India was to preserve its current tax structure.
Before joining India, Sikkim had its own tax system, and its residents were not subject to the Indian Income Tax Act. To respect this historic agreement and honor the terms of the merger, the Government of India granted Sikkimese people special exemptions from income tax.
Sikkimese Tax Exemption Act
The exemption is legally codified in Section 10(26AAA) of the Income Tax Act, which states that any income earned or derived from any source in Sikkim or by any Sikkimese person through dividends or interest on securities is exempt from income tax. A "Sikkimese" person is specifically defined to include, among other criteria, people who were residing in Sikkim immediately before its merger with India.
In 2008, the Union Budget repealed the Sikkim Tax Act and exempted the state's residents from paying income tax via Section 10(26AAA) of the Income Tax Act. This provision preserves Sikkim's special status under Article 371(f), benefiting more than 94% of its people. In 2013, the Association of Old Settlers of Sikkim (AOSS) filed a petition against the exclusion of "old Indian settlers" who had settled in Sikkim before its 1975 merger with India. The Supreme Court ordered the amendment of Section 10(26AAA) to include all Indian citizens residing in Sikkim up to April 26, 1975, thereby extending tax exemption to them as well.
Sikkim'd historical background
Sikkim was an independent state until 1975 when it joined India as its 22nd state via a democratic process. The merger was the result of a referendum in which the people of Sikkim voted overwhelmingly to join India. However, this integration came with several assurances, including provisions on taxation, to protect Sikkim's distinctive cultural, social, and economic fabric.
The exemption is intended to maintain socio-economic stability in Sikkim. The state has a predominantly agrarian economy with a small industrial base. Tax exemptions do not burden the local population with additional financial obligations that might jeopardize their economic well-being. Furthermore, it helps to preserve Sikkim's delicate demographic equilibrium by preventing an influx of non-Sikkimese people solely for tax advantages.
