Wealth tax is not a very important or high revenue tax in view of various exemptions. Wealth tax is a socialistic tax. It is not on income but payable only because a person is wealthy. Wealth tax is an annual tax like income tax. It is another type of direct tax by which tax is imposed on individuals coming within its purview. Pensioners, retired persons or senior citizens have not been accorded any special benefits under this Act. The valuation date for wealth tax computation is 31st March, The twelve months immediately before the computation date is considered as previous year for which wealth tax is calculated. Net wealth means taxable wealth. It means the amount by which the aggregate value of all assets (excluding exempted assets) belonging to the assessee on the valuation date including assets required to be included in the net wealth, is in excess of the aggregate value of all debts owed by the assessee on the valuation date which have been incurred in relation to the taxable assets. The wealth tax needs to be paid at the rate of one per cent (1%) of the amount by which net wealth exceeds Rs. 30 lakhs. No surcharge or education cess is payable.
The direct tax code (DTC) is expected to come into force with effect from 1 April, 2012. In it, there are lot of changes proposed and one among them is the enhancement of wealth tax exemption limit from the current Rs. 30 lakh to R. 1 crore, so everyone will, therefore, need to review their tax situation next year once the DTC comes into play.
The liability to pay tax in the case of an individual depends upon his residential status and nationality. Residential status is decided as per the provisions of the Income-tax Act
The scope of liability to wealth tax is as follows:
- In the case of an individual who is a citizen of India and resident in India, a resident—HUF and company resident in India;
Wealth tax is chargeable on net wealth comprising of - All assets in India and outside India;
- All debts in India and outside India are deductible in computing the net wealth.
- In the case of an individual who is a citizen of India but non-resident in India or not ordinarily resident in India, HUF, non-resident or not ordinarily resident in India and a company non-resident in India;
- All assets in India except loan and debts interest whereon is exempt from income-tax under section 10 of the Income-tax Act are chargeable to tax.
- All debts in India are deductible in computing the net wealth.
- All assets and debts outside India are out of the scope of Wealth Tax Act.
- In the case of an individual who is not a citizen of India whether resident, non-resident or not ordinarily resident in India:
Same as in (b):
The credit balance in a Non-resident (External) Account is exempt from wealth tax provided the depositor is a person resident outside India as defined in the Foreign Exchange Regulation.
Taxable assets under the Wealth Tax include
· Residential house or commercial building or Guest house
· Automobiles
· Jewellery, bullion, utensils of gold, silver, or other precious metals;
· Yachts, boats and aircraft;
· Urban land located within specified limits; and
· Cash in hand in excess of Rs.50, 000/-
Assets exempted from Wealth Tax
· Property held under a trust or other legal obligation for any public purpose of a charitable or religious nature in India subject to the satisfaction of the stipulated conditions;
· House occupied for the purpose of business or profession;
· One house or a part of house used for residential purpose;
· Property held under a trust
· Assets held as stock-in-trade in business;
· Urban land on which construction is not permissible;
· Co-parcenary interest in a Hindu Undivided Family (HUF);
· Certain specified government bonds;
· Resurgent India Bonds;
· NRI Bank Account Deposits and FCNR Deposits; and
· Assets belonging to Indian repatriate.
Deemed Assets
Assets as specified above and belonging to the non-resident are included in computing the net wealth. In some cases, certain assets which do not belong to the non-resident are included in his net wealth when they are held or are transferred with the intention to avoid wealth tax. These are referred to as deemed assets, which include:
· Assets transferred by one spouse to another;
· Assets held by a minor
· Assets transferred to a person or an association of persons;
· Assets transferred under revocable transfers;
· Assets transferred to close relatives;
· Interest of a partner in a partnership firm;
· Self-acquired property converted into joint family property;
· Gifts made by mere book entries; and other assets which would otherwise belong to the non-resident.
Wealth tax is levied on the 'net wealth' which means that from the aggregate of all assets (including deemed assets but excluding exempt assets) the value of debts owed on the valuation date shall be deducted subject to the satisfaction of the following two conditions viz. Only debts which are 'owed' on the valuation date are deductible.
Debts should have been incurred in relation to those assets which are included in the net wealth of the assessee
Every person is required to file a return of net wealth in form prescribed by Income Tax Authorities from time to time if his/her net wealth or net wealth of any other person in respect of which he is assessable under the Act on the valuation date is such an amount as to render ' him liable to wealth tax. The dates of filing the return are the same as under the Income-tax Act for filing returns. Where wealth tax is payable on the basis of return to be furnished, the assessee is required to pay the tax before filing of the return and such return is to be accompanied by the proof of payment.
Note: This article is meant for the general information of the readers. Provisions related to the rate of wealth tax, its computations etc are subject to change. Hence, contact your tax consultant or chartered accountant for more information and guidance. Errors and Omissions are expected.
Best Regards
Prakash Nair
