Sikkim enjoys several tax exemptions and special financial provisions due to its unique historical, geographical, and political status. Here’s a detailed explanation of why Sikkim has a "No Tax" or reduced tax policy:
1. Special Constitutional Status
- Sikkim was an independent kingdom before merging with India in 1975.
- The 36th Constitutional Amendment Act, 1975, granted special protections to Sikkim under Article 371F.
- As per Article 371F, the existing laws of Sikkim were allowed to continue unless explicitly repealed or amended by the Indian government.
2. Income Tax Exemption for Sikkimese Citizens
- The Sikkim Income Tax Manual, 1948, was in force before Sikkim’s merger with India.
- This manual exempted Sikkimese residents from paying income tax.
- Even after Sikkim became part of India, this tax exemption continued.
- The Income-tax Act, 1961 (which applies to the rest of India), does not apply to Sikkimese individuals.
Who is Exempted?
- Only individuals who are "Sikkim Subject Certificate" holders or their descendants are exempted.
- Non-Sikkimese people living in Sikkim are not exempt and must pay income tax under Indian law.
Exception:
- In 2008, the Government of India extended income tax applicability to non-Sikkimese residents in Sikkim.
3. GST & Indirect Tax Exemptions
- Before GST (Goods and Services Tax), Sikkim had several state-level tax exemptions.
- However, after GST implementation in 2017, Sikkim became part of the national taxation system, but with some benefits:
- Lower tax rates for certain goods and services.
- Special economic incentives for businesses.
- Sikkim also enjoys certain central excise duty exemptions for industries under the North East Industrial and Investment Promotion Policy (NEIIPP).
4. No Agricultural Income Tax
- Under Indian law, agricultural income is already tax-free.
- Sikkim, being an organic farming state, benefits from this rule.
5. Special Economic and Industrial Benefits
- The Indian government provides special subsidies and tax incentives for businesses operating in Sikkim.
- Many industrial units in Sikkim benefit from Corporate Income Tax exemptions and subsidies under the North East Industrial Policy.
Conclusion:
Sikkim's tax benefits mainly exist due to its historical merger conditions, Article 371F, and pre-merger tax laws. While Sikkimese citizens are exempt from income tax, GST and other indirect taxes are applicable but with some benefits. These provisions make Sikkim one of the most tax-friendly regions in India.
