ITR FY25 Filing: Earn crores, pay no Income Tax! This is the only tax-free state in India

As the income tax filing season for FY 2024–25 gains momentum, here's an interesting twist: there’s one Indian state where select residents can earn crores of rupees without paying a single rupee in income tax. That state is Sikkim—India’s only income tax-free state under special constitutional protection.

Sikkim: India’s only income tax-free state

In a country where income tax returns (ITR) are mandatory for almost everyone with taxable income, Sikkim stands out with a complete central income tax exemption for eligible individuals. And no—it’s not a loophole or temporary relief. It’s a permanent exemption, embedded in the Indian Constitution and recognized under the Income Tax Act, 1961.

Why Sikkim residents don’t pay income tax?

Sikkim enjoys a special constitutional status under Article 371(F), which allows it to maintain its own set of laws even after merging with India in 1975. The Income Tax exemption is reinforced under Section 10(26AAA) of the Income Tax Act.

As a result, qualified native Sikkimese residents can legally earn crores in salary, business profits, capital gains, or investments—without paying any central income tax.

The history behind Sikkim’s tax-free status

When Sikkim merged with India in 1975, a unique agreement allowed the state to retain certain administrative and financial practices. One of the key decisions was to exempt its native residents from paying central income tax. This policy, now nearly five decades old, continues to be legally binding and constitutionally protected.

Who is eligible for Income Tax exemption in Sikkim?

The exemption doesn’t apply to every resident. Only those who are:

• Registered under the Sikkim Subjects Regulation, 1961
• Recognized as ‘Sikkim Subjects’ before the 1975 merger

Listed in the official Sikkim subject register

Those who moved to the state after the merger—even long-term residents—do not qualify for this exemption.

What type of Income is tax-free?

For eligible individuals, all income types are exempt from central taxation, including:

• Salary income
• Business or professional income
• Rental income
• Capital gains
• Dividends and interest
• Investment returns

This complete exemption significantly boosts disposable income, encourages local investments, and enhances financial independence among native Sikkimese.

Impact on Sikkim’s local economy

The tax-free income landscape allows eligible individuals to save more, invest more, and spend more locally. Many residents launch businesses or support community ventures, which boosts economic activity within the state. The financial freedom due to zero income tax liability acts as a catalyst for grassroots entrepreneurship.

Sikkim vs Rest of India: A tax perspective

Across India, certain incomes are tax-exempt—like agricultural income, NRE interest, and scholarships. But no other Indian state offers a full income tax exemption based on native status. Sikkim remains the only state in India where a specific section of the population pays zero central income tax legally.

As lakhs of Indian taxpayers rush to file their ITR for FY25, eligible residents of Sikkim continue to enjoy a unique benefit—the power to earn without tax. With constitutional backing and legislative support, this tax-free status continues to make Sikkim a financial outlier in India's taxation framework.