Under the Income Tax Act, certain groups living in specific areas of select states in India are exempted from paying income tax. These exemptions are granted based on specific criteria, such as income levels, socio-economic status and occupation of the people forming these groups. This unique approach to taxation helps in lessening the financial burden on disadvantaged people living in these areas, providing them with a level-playing field.
Tax exemptions for scheduled tribes in northeastern states and UTs
Under Section 10(26) of the income tax laws, exemption from paying taxes is provided to members of scheduled tribes. Such groups of individuals residing in states like Tripura, Mizoram, Manipur, Nagaland, Assam and Arunachal Pradesh are exempted from paying income tax. The tribes living in Ladakh region of the Union Territory of Jammu and Kashmir also get tax exemption.
Also read: Income Tax Return: How to choose correct ITR form for tax filing
Which incomes are exempted for scheduled tribes in specific regions
As per Section 10(26) of the Income Tax Act, the following income is exempted from income tax: Any income arising or accruing from any source in the specified areas or states, by way of dividend or interest on securities, for a member of a Scheduled Tribe residing in any area specified in the Constitution.
These areas include the North Cachar Hills District, Karbi Anglong District, Bodoland Territorial Areas District, Khasi Hills District (Meghalaya), Jaintia Hills District (Meghalaya), and Garo Hills District (Meghalaya). Additionally, the states of Manipur, Tripura, Arunachal Pradesh, Mizoram, Nagaland, and the Ladakh region are also covered under this exemption.
Exceptions to tax exemption under Section 10(26)
The exemption, however, is not valid for certain incomes. Rental income from immovable property situated outside the stated areas and income from any business activity conducted outside the stated areas are not valid for tax exemption.
Applicability of Section 10(26) of Income Tax Act
Section 10(26) of the Income Tax Act applies to the following areas: Part I (The North Cashar Hills District and The Karbi Anglang District) or Part II (The Chakma District, The Mara District, and The Lai District) of the Sixth Schedule to the Constitution. The Section 10(26) applies to states like Arunachal Pradesh, Mizoram, Manipur, Nagaland, and Tripura; and the Ladakh region of Jammu and Kashmir.
A member of any of scheduled tribes living in any of these regions when generates income while living there is tax exempted.
For example – Sikkimese individuals earning from any source in Sikkim or through dividends or interest on securities are eligible for tax exemption under Section 10(26AAA).
Also read: ITR Filing: What is ‘NIL’ tax return and when should you file one?
How to claim exemption under Section 10(26)?
One can claim tax exemption under Section 10(26) by filing an income tax return (ITR). Since their incomes qualify for tax exemptions based on the nature of that income, these individuals need to disclose the income generated and the exemption.
Are scheduled tribe individuals required to file income tax?
Yes, the scheduled tribe people living in most of the northeastern states and the Ladakh region of UT of Jammu and Kashmir need to file ITRs if their income goes beyond the threshold defined by the income tax department. They must specify the income earned and claim the exemption under sections 10(26) and 10(26AAA).
