You might be surprised with the terminology of Wealth Tax. Most of us
are fully conversant with income-tax and understand that if we make
money, then we are required to part with a portion of the money by way
of income-tax. But payment of Wealth Tax might be a discovery for you
and you may not be interested to understand about Wealth Tax law because
when we talk of Wealth Tax, it implies payment of tax on our wealth.
However, the meaning of Wealth Tax, the exemption limit of Wealth Tax and the items on which Wealth Tax is payable needs to be understood. Wealth Tax is a separate tax other than income-tax and service tax and the same is payable by individuals, Hindu Undivided Families and the Corporate Sector. Other than these categories Wealth Tax is not payable by other categories of tax payers in India.
In Income-tax we are aware that the basic income-tax exemption limit for individuals is Rs 2 lakh. This means that if you have an income of upto Rs 2 lakh, you are not liable to pay income-tax. Similarly, in the Wealth Tax law, the basic exemption limit is
Rs 30 lakh. This means that there is no liability to pay Wealth Tax if you have got a taxable wealth of up to Rs 30 lakh.
With growing savings and accumulation of wealth in your name or in the name of your client you might be worried that your wealth will exceed Rs 30 lakh and you might be called upon to make payment of Wealth Tax. But a large number of assets owned by you might fall outside the purview of Wealth Tax. Thus, Wealth Tax is not payable on the entire wealth you are having in your name but Wealth Tax is payable only on selected assets belonging to you.
The list of assets in respect of which Wealth Tax is payable are enumerated in section 2(ea) of the Wealth Tax Act, 1957. For ready reference, hereunder is the list of the specified assets which alone are liable to Wealth Tax as mentioned in the said Wealth Tax Act:
(a) Any guest house, residential house, commercial property, and/or farm house situated within 25 kilometres from the local limits of any municipality or a cantonment board, but excluding,
(1) A house meant exclusively for residential purpose and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, (A) having gross annual salary of less than Rs 10,00,000; (B) having gross annual salary of less than Rs 5,00,000 [upto assessment year 2012-13],
(2) Any residential house forming part of stock-in-trade,
(3) Any house for commercial purpose (i.e., commercial property) which forms part of stock-in-trade,
(4) Any house which is occupied by the assessee for the purpose of any business or profession carried by him,
(5) Any residential property that has been let-out for a minimum period of 300 days in the previous year, and
(6) Any property in the nature of commercial establishments or complexes;
(b) Motor cars, other than those used in assessee’s hiring business or used as stock-in-trade;
(c) Jewellery, bullion and 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, other than those used as stock-in-trade by the assessee;
(d) Yachts, boats and aircrafts, other than those used by the assessee for commercial purposes;
(e) Urban land, being land situated in any area within the jurisdiction of a municipality or a cantonment board which has a population of not less than 10,000; or within 8 kilometres from the local limits of such municipality or a cantonment board, as the Central Government may notify.
However, urban land shall not include:
(1) Land on which construction of a building is not permissible under any law or the land on which building is constructed with the approval of the appropriate authority,
(2) Any unused land held by the assessee for industrial purpose for a period of two years from the date of its acquisition by him, and
(3) Any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him;
(f) Cash in hand, in excess of Rs 50,000 of individuals and Hindu Undivided Families and in the case of other persons any amount not recorded in the books of account.
Thus, from the above mentioned list you can conclude that not all your assets come within the tax liability under the Wealth Tax Act. It is only selected assets which come within the purview of Wealth Tax Law. To make it simple, generally speaking your residential properties, motor cars, jewellery are some of the most important items on which Wealth Tax is payable. However, when it comes to real estate, please remember that one house property in any case is fully exempt from Wealth Tax.
If you are having more than one house property, but these properties are in the form of commercial properties, then again there is no liability to Wealth Tax irrespective of the number of properties you own. If you make investment in residential properties and you have more than one residential property in your name, then if you have given these residential properties on rent for a minimum period of 300 days in a year, then also there is no liability to Wealth Tax in respect of such properties.
We have discussed certain important assets which are liable to Wealth Tax but all other movable assets like bank balances, Fixed Deposits, shares of companies, debentures of companies, bonds of companies, loans to friends, relatives, loans to any party, Mutual Funds etc., are not at all liable to Wealth Tax. Thus, for most of the individual tax payers this exemption will prove handy as they will not be required to pay Wealth Tax because of innumerable Wealth Tax exemptions. Also remember, there is no Wealth Tax liability on the insurance policies owned by you.
For all those persons who are liable to make payment of Wealth Tax, they have to compulsorily file yearly Wealth Tax Return. However, it may be noted that the Wealth Tax Return is to be filed only when the net taxable wealth is in excess of Rs 30 lakh. For example, if a person is having jewellery worth Rs 10 lakh, shares worth Rs 50 lakh, bank Fixed Deposit of Rs 30 lakh and a very big house, even then he is not liable to pay Wealth Tax because the entire quantum of shares and FDR as also one house are completely exempt from Wealth Tax. Thus, his taxable net Wealth Tax happens to be only Rs 10 lakh for which there is no liability to Wealth Tax.
Hence, it may be remembered that all those persons who have got wealth exceeding the exemption limit have to file Wealth Tax Return every year after the close of the financial year. The last date of filing Wealth Tax Return is exactly like the Income-tax Return. There is a separate Wealth tax Return form required to be filled up for filing Wealth Tax Return. The tax payer is required to make payment of Self Assessment Wealth Tax before filing the Wealth Tax Return. However, no Advance Tax is liable to be paid with reference to your liability to Wealth Tax. The payment of Wealth Tax is at the rate of 1 per cent of the taxable wealth. Once you understand your obligations to pay and file the Wealth Tax Return, then you have no hassle or problem in dealing with matters relating to Wealth Tax.
Courtesy: magicbricks.com
However, the meaning of Wealth Tax, the exemption limit of Wealth Tax and the items on which Wealth Tax is payable needs to be understood. Wealth Tax is a separate tax other than income-tax and service tax and the same is payable by individuals, Hindu Undivided Families and the Corporate Sector. Other than these categories Wealth Tax is not payable by other categories of tax payers in India.
In Income-tax we are aware that the basic income-tax exemption limit for individuals is Rs 2 lakh. This means that if you have an income of upto Rs 2 lakh, you are not liable to pay income-tax. Similarly, in the Wealth Tax law, the basic exemption limit is
Rs 30 lakh. This means that there is no liability to pay Wealth Tax if you have got a taxable wealth of up to Rs 30 lakh.
With growing savings and accumulation of wealth in your name or in the name of your client you might be worried that your wealth will exceed Rs 30 lakh and you might be called upon to make payment of Wealth Tax. But a large number of assets owned by you might fall outside the purview of Wealth Tax. Thus, Wealth Tax is not payable on the entire wealth you are having in your name but Wealth Tax is payable only on selected assets belonging to you.
The list of assets in respect of which Wealth Tax is payable are enumerated in section 2(ea) of the Wealth Tax Act, 1957. For ready reference, hereunder is the list of the specified assets which alone are liable to Wealth Tax as mentioned in the said Wealth Tax Act:
(a) Any guest house, residential house, commercial property, and/or farm house situated within 25 kilometres from the local limits of any municipality or a cantonment board, but excluding,
(1) A house meant exclusively for residential purpose and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, (A) having gross annual salary of less than Rs 10,00,000; (B) having gross annual salary of less than Rs 5,00,000 [upto assessment year 2012-13],
(2) Any residential house forming part of stock-in-trade,
(3) Any house for commercial purpose (i.e., commercial property) which forms part of stock-in-trade,
(4) Any house which is occupied by the assessee for the purpose of any business or profession carried by him,
(5) Any residential property that has been let-out for a minimum period of 300 days in the previous year, and
(6) Any property in the nature of commercial establishments or complexes;
(b) Motor cars, other than those used in assessee’s hiring business or used as stock-in-trade;
(c) Jewellery, bullion and 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, other than those used as stock-in-trade by the assessee;
(d) Yachts, boats and aircrafts, other than those used by the assessee for commercial purposes;
(e) Urban land, being land situated in any area within the jurisdiction of a municipality or a cantonment board which has a population of not less than 10,000; or within 8 kilometres from the local limits of such municipality or a cantonment board, as the Central Government may notify.
However, urban land shall not include:
(1) Land on which construction of a building is not permissible under any law or the land on which building is constructed with the approval of the appropriate authority,
(2) Any unused land held by the assessee for industrial purpose for a period of two years from the date of its acquisition by him, and
(3) Any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him;
(f) Cash in hand, in excess of Rs 50,000 of individuals and Hindu Undivided Families and in the case of other persons any amount not recorded in the books of account.
Thus, from the above mentioned list you can conclude that not all your assets come within the tax liability under the Wealth Tax Act. It is only selected assets which come within the purview of Wealth Tax Law. To make it simple, generally speaking your residential properties, motor cars, jewellery are some of the most important items on which Wealth Tax is payable. However, when it comes to real estate, please remember that one house property in any case is fully exempt from Wealth Tax.
If you are having more than one house property, but these properties are in the form of commercial properties, then again there is no liability to Wealth Tax irrespective of the number of properties you own. If you make investment in residential properties and you have more than one residential property in your name, then if you have given these residential properties on rent for a minimum period of 300 days in a year, then also there is no liability to Wealth Tax in respect of such properties.
We have discussed certain important assets which are liable to Wealth Tax but all other movable assets like bank balances, Fixed Deposits, shares of companies, debentures of companies, bonds of companies, loans to friends, relatives, loans to any party, Mutual Funds etc., are not at all liable to Wealth Tax. Thus, for most of the individual tax payers this exemption will prove handy as they will not be required to pay Wealth Tax because of innumerable Wealth Tax exemptions. Also remember, there is no Wealth Tax liability on the insurance policies owned by you.
For all those persons who are liable to make payment of Wealth Tax, they have to compulsorily file yearly Wealth Tax Return. However, it may be noted that the Wealth Tax Return is to be filed only when the net taxable wealth is in excess of Rs 30 lakh. For example, if a person is having jewellery worth Rs 10 lakh, shares worth Rs 50 lakh, bank Fixed Deposit of Rs 30 lakh and a very big house, even then he is not liable to pay Wealth Tax because the entire quantum of shares and FDR as also one house are completely exempt from Wealth Tax. Thus, his taxable net Wealth Tax happens to be only Rs 10 lakh for which there is no liability to Wealth Tax.
Hence, it may be remembered that all those persons who have got wealth exceeding the exemption limit have to file Wealth Tax Return every year after the close of the financial year. The last date of filing Wealth Tax Return is exactly like the Income-tax Return. There is a separate Wealth tax Return form required to be filled up for filing Wealth Tax Return. The tax payer is required to make payment of Self Assessment Wealth Tax before filing the Wealth Tax Return. However, no Advance Tax is liable to be paid with reference to your liability to Wealth Tax. The payment of Wealth Tax is at the rate of 1 per cent of the taxable wealth. Once you understand your obligations to pay and file the Wealth Tax Return, then you have no hassle or problem in dealing with matters relating to Wealth Tax.
Courtesy: magicbricks.com
