Income Tax: Why residents of THIS state are exempted from paying tax?

Income Tax: The Income Tax Act of 1961 mandates every individual to file ITR. But the residents of Sikkim, a small state in northeastern India, are exempted from to paying income tax. As per the Article 372 (f) of the Indian Constitution, people living in Sikkim have to pay no income tax. 

In 1975, Sikkim merged with India under the condition that it would maintain its special status. The tax regulation was made in 1948. In 2008, Sikkim's tax laws were repealed, which exempted the state’s citizens from paying taxes through Section 10 (26AAA) of the Act. 

Sikkimese was previously exempt from the PAN requirement by the Securities and Exchange Board of India (SEBI).

What is Section 10 (26AAA) which exempts Sikkimese to pay income tax?

Section 10 (26AAA) of the Act exempts the income earned by Sikkimese individuals in the state or through dividends or interest on securities from elsewhere from income tax.

All Indians/old Indian settlers, who have permanently settled in Sikkim before the merger of Sikkim with India in 1975, irrespective of whether his/her name is recorded in the register maintained under the Sikkim Subjects Regulations, 1961 read with Sikkim Subject Rules, 1961 or not, are entitled to the exemption under Section 10(26AAA) of the Income Tax Act. 17.1 Proviso to Section 10(26AAA) insofar as it excludes from the exempted category, “a Sikkimese woman, who marries a non-Sikkimese after 01.04.2008” is hereby struck down being ultra vires to Articles 14, 15 and 21 of the Constitution of India.

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