Wealth tax virtually stands abolished in India. Productive assets are free from wealth tax without any limit. Shares, units, commercial buildings are treated as productive assets. It is applicable to the whole of India.
It shall be deemed to have come into force on the April 1, 1957 and is an important direct tax legislation. The tax is to be paid year after year on the same property on its market value, whether or not such property yield any income.
Only the following are considered as 'assets' for the purpose of wealth tax, unless these are used for business or profession:
Wealth tax is chargeable asset
- Any guesthouse, residential house, commercial property, urban farmhouse. However an exception is provided in this clause regarding the following:
- A residential house allotted by a company to an employee, officer or director, drawing annual salary of less than Rs 500,000.
- A residential or a commercial house forming part of stock in trade.
- Residential property let out for minimum of 300 days in a year.
- Commercial house used in own business of the assessee.
- Motorcar for personal use.
- Jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals.
- Provided that where the assessee as stock-in-trade uses any of the said assets, such asset shall be deemed as excluded from the assets specified in this sub-clause.
- Yachts, boats, and aircrafts used for non-business purposes.
- Urban land, subject within the jurisdiction of municipality or cantonment board with a population of no less than 10,000 according to the preceding census or within 8 kilometres or such local limits.
However, the following types of land are exempt
- On which construction is not permissible under any law.
- Unused land for industrial purposes held for less than 2 years.
- Held a stock-in-trade for 10 years.
- Occupied by a building constructed with the approval of an appropriate authority.
- Cash in hand exceeding Rs 50,000 of individuals and HUFs and in other cases, amount not recorded in the book of accounts.
Percentage of charge
The net wealth so arrived at is charged to tax at the rates specified. The present rate of tax is 1 per cent of the amount by which the net wealth exceeds Rs 15 lakh Rs 1.5 million).
The rate is same for individuals, HUF's and companies. Special rules have been laid down in the regarding valuation of various assets like immovable properties, shares, and jewellery.
Illustration: Mr Shah has the following assets and liabilities on the Valuation Date
- Residential House: Rs 40 lakh (Rs 4 million)
- Cars for personal use: Rs 10 lakh (Rs 1 million)
- Jewellery: Rs 16 lakh (Rs 1.6 million)
- Aircrafts and boats for personal use: Rs 1.3 crore (Rs 13 million)
- Farm house 15km away from local limits of Mumbai: Rs 12 lakh (Rs 1.2 million)
- Cash in hand: Rs 220,000
- Shops given on rent: Rs 12 lakh (Rs 1.2 million)
- Loan taken to purchase aircrafts: Rs 50 lakh (Rs 5 million)
- Loan taken to purchase residential house: Rs 22 lakh (Rs 2.2 million)
Compute Net Wealth and Wealth Tax?
- Residential House (exempt)
- Cars for personal use: Rs 10 lakh (Rs 1 million)
- Jewellery: Rs 16 lakh (Rs 1.6 million)
- Aircrafts and boats for personal use: Rs 1.3 crore (Rs 13 million)
- Farm house 15 Km away from local limits of Mumbai: Rs 12 lakh (Rs 1.2 million)
- Cash in hand ( In excess of Rs. 50,000 is an asset): Rs 170,000
- Shops given on rent (Commercial establishment not an asset u/s 2 (ea)): Rs 169.7 lakh
- Less - Loan taken to purchase aircrafts: Rs 50 lakh (Rs 5 million)
- Loan taken to purchase residential house (Not deductible since residential house is exempt)
- Net Wealth: Rs 119.7 lakh (Rs 11.97 million)
Wealth Tax: 1 per cent of (Net Wealth -Rs 15 lakh) = 1 per cent of Rs 10.4 crore (Rs 104 million)
Hence Mr Shah has to pay Rs 1,04,700 as Wealth Tax.
Jurisdiction
The Income Tax authorities specified in section 116 of the Income Tax Act shall be the wealth-tax authorities for the purposes of this Act and every such authority shall exercise the powers and perform the functions of a wealth-tax authority under this Act, in respect of any individual, Hindu undivided family or company, and for this purpose his jurisdiction under this Act shall be the same as he has under the Income Tax Act by virtue of orders or directions issued.
Wealth planning doesn't involve anything difficult, though most ordinary people think it does. We look at wealthy people and wish we knew their secrets.
The truth is there aren't any real secrets, but there are some rules that go into creating a viable wealth plan. The real reason most people don't become wealthy is that they don't sit down and develop a financial plan that will ensure they become wealthy.
They have some vague ideas and make some half-hearted investments, but they are a long way from becoming truly wealthy because in order to create wealth, you must have clear goals and objectives in place.
Thus, as a wise financial planner, after taking into consideration the risk profile, return and liquidity, one should inculcate financial discipline. This will take a long way but to be successful in ones life, only after bearing in mind, the wealth tax implications along with other statutory tax laws.
