All About Wealth Tax

Besides Income-tax, there is another direct tax act namely Wealth Tax Act, 1957 which imposes tax on individuals coming within its purview. Pensioners, retired persons or senior citizens have not been accorded any special benefits under this Act. Wealth tax is an annual tax like income tax. Every person comes under the preview of this tax but very few now about it at all.

Wealth tax is a form of direct tax levied on the market value of the property for the benefits derived from ownership of such property, irrespective of whether the property derives any income or not. Wealth tax is charged on the net wealth of the tax payer, where net wealth means the aggregate value of all the assets, excluding exempt assets, belonging to the tax payer on the valuation date less the aggregate value of all debts owed by him which have been incurred in relation to these taxable assets.

According to the wealth tax act, 1957, wealth tax is applicable to the following:
• An individual person
• A group of people who own a property
• A company or organization
• A Hindu undivided family (HUF)
• Person belongs to 1-by -6 categories
• A representative or heir of a dead person
• Non corporative tax payer
However the scope of liability of wealth tax depends upon the residential status (decided as per Income -tax Act)and nationality of the tax payer.
• If the tax payer is a citizen and resident of India then the net wealth comprises of
• All assets in India and outside India;
• All debts in India and outside India are deductible in computing the net wealth.
• If the tax payer is a citizen of India but a non-resident in India then the net wealth would comprise of
• All assets in India other than loan and debts interest those are exempt from income-tax under section 10 of the Income-tax Act.
• All debts in India are deductible in computing the net wealth.
• All assets and debts outside India are out of the scope of the Wealth Tax Act.
• In case the tax payer is not a citizen of India, whether resident or non-resident, same rules as applicable to non-resident shall be applicable.
There are broadly two types of assets which attract wealth tax- Owned assets and Deemed assets.
Owned assets include:
• Land or building included in the following categories:
• Commercial buildings
• Residential buildings
• Guest houses
• Farm houses situated within 25 kilometers from the local limits of any Municipality, Municipal Corporation or a Cantonment Board.
• Motor cars
• Jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal.
• Yachts, boats and aircrafts.
• Urban land
• Cash in hand
• In excess of Rs. 50,000/-, in case of an individual and HUF.
• Not recorded in books of accounts, in case of companies.

Deemed assets include:
• Assets transferred by one spouse to another.
• Assets held by minor children (including physically and/or mentally handicapped).
• Assets transferred to a person or an association of persons.
• Assets transferred under revocable transfer.
• Assets transferred to son’s wife.
• Assets transferred to a person or Association of Persons for the benefit of son's wife.
• Value of the interest of the tax payer in the assets of the firm or an association, where he is a partner in the firm or a member of the subject association.
• Assets converted by an individual of his self-acquired property into joint family property.
• Where a gift of money from one person to another is made by means of entries in books of account maintained by the person making the gift.
• Assets falling under ‘Impartible estate’.
• Assets allotted or leased to the tax payer on account of being a member of a housing society.
• Assets held by a person in part performance of a contract.

Wealth Tax is currently levied at the rate of 1% per annum of the net wealth over and above Rs.15 lakh.Returns have to be filed in form ‘BA’ and the dates co-incide with the dates of filing Income-Tax returns.

However, there are some heads under which exemptions are bestowed:
In case of buildings the following shall be exempt:
• Houses meant for residential purposes allotted by a company to whole time employees having a gross annual salary of less than Rs. 5,00,000/-.
• Houses for residential or commercial purposes which form part of stock-in-trade.
• Houses which the tax payer may occupy for the purposes of any business of profession carried on by him.
• Residential property that has been let out for a minimum period of 300 days in the previous year.
• Property of the natureof commercialestablishments or complexes.
Motor cars used by the tax payer for business or running them on hire or as stock-in-trade.

Urban land:
• On which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated
• Occupied by any building which has been constructed with the approval of the appropriate authority
• Unused land held by the tax payer for industrial purposes for a period of two years from the date of its acquisition by him.
• Held by the tax payer as stock-in-trade for a period of five years from the date of its acquisition by him.
 Property held under a trust or other legal obligation for any public purpose of a charitable or religious nature in India.
 Furniture, apparels and electronic items for personal use.
 Coparcenary interest in a HUF property.
 Former Ruler's jewellery (excluding his personal jewellery) which has been recognized as a heirloom by the Central Government before 1.4.1957 or by the CBDT after that date
 Residential buildings and palaces of a former ruler
 Assets belonging to the Indian repatriates who have returned to India with an intention for permanently residing in India are exempt from wealth tax for seven years for the following items:
• Money brought by him into India.
• Value of asset brought by him into India.
• Money standing to the credit of such person in a Non-resident (External) Account in any bank in India on the date of his return to India.
• Value of assets acquired by him out of money referred to in the first and the third point above within one year prior to the date of his return and at any time thereafter.
 One house, part of a house or a plot of land belonging to an individual or HUF is exempt from Wealth Tax.
 Wealth tax is not levied on productive assets, hence investments in shares, debentures, UTI, mutual funds.

Incorrect declaration can invite a fine of up to 500 per cent of the evaded tax. Tax evasion can result into imprisonment of the tax payer of up to seven years along with fine if the tax evaded is over Rs.1 lakh and up to three years with fine if tax evaded is lesser than Rs 1 lakh. Delayed filing can result into a penalty of Rs 100-200 per day.

Keeping inflationary considerations in mind, it will be a positive step towards the tax payer which is genuinely required in present times. These current limits were fixed way back in 1992 and have not been updated since then. But due to inflation, the valuations have gone up considerably and thus the exemption limit does perform the required balancing act.
Although from the point of view of the government, such a step would necessarily erode the tax base and would hamper the tax revenues from wealth tax. But considering the fact that the present revenues are not very significant, it would be beneficial for the government too in the long run provided the list of assets is made more exhaustive.