When it comes to income tax exemptions in India, Section 10 of the Income Tax Act is a powerhouse. Within this section lies Section 10(26AAA)—a relatively lesser-known but highly impactful clause, especially for a specific group of individuals. So, who does it benefit & how?
Let’s decode this.
What is Section 10(26AAA)?
Section 10(26AAA) of the Income Tax Act provides complete tax exemptions for Sikkimese individuals. Introduced to honour the unique constitutional & historical status of Sikkim within the Indian Union, this clause ensures that eligible residents enjoy special tax privileges.
Who qualifies under this section?
To be eligible, an individual must satisfy two major conditions:
- They should be a Sikkimese individual, as defined in the explanation to the section.
- The income should be derived from sources in Sikkim or received in Sikkim.
That means, Sikkim is exempt from income tax under Section 10(26AAA) for such individuals—this includes salaries, rent, business profits, & even agricultural income earned in Sikkim.
Why was this section introduced?
When Sikkim merged with India in 1975, it retained a distinct identity under Article 371F of the Constitution. Recognising that identity, Section 10(26AAA) provides tax exemptions for Sikkimese individuals, offering them economic autonomy & respecting their historical tax-free status. “
Common Misconception: Does this apply to all North-Eastern states?
No, it doesn’t. While Section 10(26) of the Income Tax Act provides tax exemption to members of Scheduled Tribes in certain North-Eastern states, Section 10(26AAA) is exclusive to Sikkimese individuals.
This means:
- Section 10(26) = Scheduled Tribes in NE states
- Section 10(26AAA) = All Sikkimese individuals (not necessarily tribal) “
What kind of income is exempt?
Let’s simplify this.
If you are a qualifying Sikkimese person:
- Your salary earned in Sikkim = ✅ Exempt
- Your business profits in Sikkim = ✅ Exempt
- Your house rent from Sikkim properties = ✅ Exempt
- Interest earned from outside Sikkim banks = ❌ Taxable
So, the location of the income source matters. Income earned or received outside Sikkim is taxable even if the person is Sikkimese.
FAQs People Ask Online:
Q1. Can non-Sikkimese claim this exemption if they live in Sikkim?
❌ No. Only individuals defined as Sikkimese under the Act are eligible.
Q2. Are business owners in Sikkim exempted?
✅ Yes, if they are Sikkimese individuals, their profits from Sikkim-based businesses are tax-exempt.
Q3. Is this benefit available under the new tax regime?
🚫 No. Most exemptions, including this one, are not applicable if you opt for the new regime under Section 115BAC.
Final Thoughts
Section 10(26AAA) is a powerful clause offering relief to a specific demographic—Sikkimese individuals. It helps preserve local economic rights while offering legal clarity on what’s taxable & what’s not.
If you're unsure about your eligibility or how to declare this exemption while filing ITR, we’re here to help.
Need help with your ITR or claiming exemptions under Section 10(26AAA)?
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