ITR Filing FY25: Is It Possible to Earn Crores and Still Pay Zero Income Tax in India?

It might sound unbelievable, but there is a group of people in India who legally pay zero income tax, no matter how much they earn, even if their income runs into crores. This is not a tax loophole or a grey area in the law, but a constitutionally backed and legally defined exemption. This rare benefit is reserved for certain residents of one Indian state, Sikkim.

Sikkim: The Only Income Tax-Free State in India

Sikkim holds a unique position in India’s taxation landscape. Residents who qualify as native Sikkimese do not pay any income tax, thanks to a combination of constitutional protections and provisions in the Income Tax Act.

This exemption is not a temporary or recently introduced benefit. It stems from historical agreements made during Sikkim’s merger with India in 1975, wherein it was agreed that the existing laws of Sikkim would remain in effect. This gave rise to a tax regime that is fundamentally different from the rest of India.

Legal Grounds: Article 371(F) and Section 10(26AAA)

The tax exemption is rooted in 2 key legal instruments. Article 371(F) of the Constitution of India grants special status to Sikkim, enabling it to preserve its pre-merger laws.

Further, Section 10(26AAA) of the Income Tax Act specifically provides that any income earned by an individual who is a Sikkimese native is not taxable. This includes income from salary, business, investments, and even dividends and securities.

Read More: ITR Filing 2025: Key Deadlines and Rules for Every Taxpayer- salaried, companies, businessmen, or NRIs. 

Who Qualifies for This Exemption?

The exemption does not apply to all current residents of Sikkim. It is only available to those who are defined as native Sikkimese. Eligibility is determined by the Sikkim Subjects Regulation of 1961, which identifies individuals who were citizens of the former Kingdom of Sikkim prior to its merger with India.

This regulation ensures that the tax exemption is preserved for original inhabitants and their descendants, maintaining the intent of the merger agreement.

No Income Threshold: Complete Exemption Regardless of Earnings

A standout feature of this exemption is that it does not impose any limit on the income earned. Whether a Sikkimese resident earns ₹5 lakh or ₹50 crore, the income remains tax-free under Indian law.

This absolute exemption provides a significant financial advantage, especially when compared to the progressive tax rates applied to residents of other states.

Broader Economic Impact for Sikkim

The tax-free status for native residents has several downstream effects. It encourages higher savings, fosters local investment, and supports entrepreneurial growth. With no outflow in the form of income tax, individuals have more disposable income, which can be reinvested in the state’s economy.

Sikkim’s unique status makes it an interesting case in public finance and governance, and offers a glimpse into how regional agreements can shape financial realities.

Other Tax-Exempt Incomes in India

While Sikkim’s case is unique at a state level, there are certain types of income that are exempt from tax across India. These include:

• Agricultural income
   
• Scholarships received by students
   
• Interest earned on NRE (Non-Resident External) accounts
   
• Share of profit received by partners in partnership firms
   
• Distributions received by members of a Hindu Undivided Family (HUF)

Each of these exemptions is governed by different sections of the Income Tax Act, and applies to specific scenarios and categories of taxpayers.

Conclusion

Sikkim remains the only Indian state where qualifying residents enjoy complete freedom from income tax. This rare exemption is a direct result of constitutional protections and historical agreements made during its accession to India.

The legal and economic framework that enables this exemption gives Sikkim a distinctive identity within the Indian Union—an identity that blends legacy, law, and financial autonomy.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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