Residents of this Indian state is exempted to pay income tax, know why

Citizens are required to pay taxes to keep their government functioning. However, there is one state in India that is exempted to pay Income tax.

The original inhabitants of India’s best-kept northeastern state, Sikkim are exempted from payment of Income tax under section 10(26AAA) of the Income Tax Act, 1961.

Once a kingdom, Sikkim merged into India under the condition that it would maintain its special status and would continue with its old laws as outlined in Article 371(f) of the Indian Constitution. Sikkim has its own tax regulations, which were established in 1948 and it has followed these laws since 1975. Also, the state's citizens are exempt from the PAN card requirement. For investments in the Indian securities market and mutual funds, residents of Sikkim were previously exempt from the PAN requirement by market regulator SEBI.

The exclusion of "old Indian settlers" from the I-T exemption, who had permanently settled in the state before 1975 when Sikkim united with India, was contested in a petition filed in 2013 by the Association of Old Settlers of Sikkim (AOSS). In response, the Supreme Court ordered the state to change the Explanation to Section 10 (26AAA). The state was instructed to incorporate a clause extending the exemption from the IT payment to all Indian citizens who had their primary residence in Sikkim on or before April 26, 1975.