Even if the natives of Sikkim earn crores, they do not have to pay a single rupee of income tax to the government because at the time of joining India in 1975, they were given this special right under Section 371F of the Constitution. To meet its expenses, the state government depends on GST, royalty on power projects, tax on liquor, vehicles and most of all, on the huge help it receives from the central government.
Sikkim had been a separate princely state for about 330 years and when it became a part of India in 1975, it was decided that the old tax system here would not be changed. This exemption is only for those people who were living here before 1975, but if a person from any other state like Delhi or Mumbai comes and settles in Sikkim, then he has to pay full income tax like the rest of the country.
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How much is income tax?
If we look at the figures for the year 2024-25, the tax collection in Sikkim is much less than other states. While tax of Rs 81,868.25 crore is collected in Uttar Pradesh, Rs 35,825.07 crore in Madhya Pradesh, Rs 28,828.91 crore in Maharashtra, Rs 18,615.35 crore in Tamil Nadu and Rs 15,872.56 crore in Gujarat, in Sikkim this figure is only Rs 1,770.72 crore. This huge difference is because the natives of Sikkim do not have to pay taxes and whatever income tax is collected there comes only from outsiders who have come from other states and settled there.
What does the Central Government get from Sikkim?
Income tax may not be paid but the Center has other ways of getting money. GST is the biggest source here. When anything is sold in Sikkim, a hotel room is booked or any service is availed, GST is levied on it and its share goes to the Central Government. Apart from this, the state government also earns money from royalty on power projects, tax on liquor and tax on vehicles. Sikkim depends more on the central government than on its own earnings.
Out of every Rs 100 in the state budget, Rs 48 comes from the Centre’s tax share and Rs 22 comes from the loan received from the Centre. In the budget of 2025-26, the Center is expected to receive Rs 5,519 crore as tax share and Rs 2,600 crore as separate assistance. Simply put, the people of Sikkim may not pay taxes but the money of taxpayers from other states of the country definitely reaches there.
Where does one earn big money?
Tourism is a major part of Sikkim’s economy. About 20 lakh tourists came to Sikkim in 2022-23, which is three times more than the entire population of the state, whereas in 2015 it was only 7 lakh. Because of these tourists, GST is collected on hotels, eating places and tours which goes into the government’s earnings. Most of the electricity in Sikkim is generated from mountain rivers.
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Sikkim government had 60% stake in the power project built on Teesta river, which was a major source of income. The project was destroyed in the floods of 2023 and the state suffered a loss of about Rs 25,000 crore. This is the largest cardamom growing state in the country and medicines and organic goods are exported from here. The state also gets money from this and the Center also benefits through GST.
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