Article discusses about Basic provisions, Following entities are not liable to pay wealth-tax, Manner of computation of net wealth, Wealth-tax and residential status, Assets covered/exempt under wealth-tax, Net wealth to include certain assets, Valuation of asset, Some of the significant provisions of Wealth-tax Law
Income-tax is levied on the income of the taxpayer, whereas wealth tax is levied on the wealth of the taxpayer. Wealth tax is governed by Wealth Tax Act, 1957. In this part you can gain knowledge on various provisions of Wealth Tax Act, 1957. Here, it is to be noted that Wealth-tax Act, 1957 is abolished w.e.f. 1-4-2016.
Following are the basic provisions of Wealth-tax Law which are to be kept in mind:Wealth-tax is levied on following persons only:
Persons other than individuals, Hindu Undivided Families (HUFs) and companies are not liable to pay wealth tax.
A partnership firm is not liable to wealth tax, but the assets of the partnership firm are charged to tax in the hands of the partners of the firm in the form of “Interest in partnership firm”. In other words, a partnership firm is not liable to wealth tax, but the value of the assets held by the firm is to be ascertained and this value will be distributed amongst the partners of the firm and will be charged to tax in the hands of the partners. However, where a minor is admitted to the benefits of partnership in a firm, the value of the interest of such minor in the firm shall be included in the net wealth of the parent of the minor.
Similarly, an association of persons (not being a co-operative housing society) is not liable to wealth tax, but the assets of the association of person are charged to tax in the hands of its members in the form of “Interest in partnership firm”.
Wealth tax is levied on the net wealth owned by a person on the valuation date, i.e., 31st March of every year.
Wealth-tax is levied at 1% on the net wealth in excess of Rs. 30,00,000. Entities which are not liable to wealth-tax
Following entities are not liable to pay wealth-tax:
Manner of computation of net wealth
Wealth tax is levied on net wealth owned by the taxpayer on the valuation date. Net wealth (i.e., taxable wealth) of every person is computed in following manner:
|Ascertain value of taxable assets as per valuation rules prescribed in this regard (i)||XXXXX|
|Add: Assets clubbed with the assets of taxpayer (i.e., deemed assets) (ii)||XXXXX|
|Less: Exempt asset (iii)||(XXXXX)|
|Gross value of asset||XXXXX|
|Less: Debt i.e., loan taken to acquire the asset at (i) and (ii)||(XXXXX)|
|Wealth tax is to be paid at 1% on the net wealth in excess of Rs. 30,00,000. No cess or surcharge is levied on Wealth tax.|
Wealth-tax and residential status
A person may own assets in India as well as abroad. The taxability of an asset will be determined on the basis of the residential status and the location of the asset. Residential status will be ascertained in the same manner as is determined under Income-tax Law. Following persons are liable to pay wealth-tax in respect of their world assets (i.e., on the assets located in India as well as on the assets located outside India):
(a) A resident and ordinarily resident individual, who is an Indian citizen.
(b) A resident and ordinarily resident HUF.
(c) A resident company.
Following persons are liable to pay wealth-tax only in respect of assets located in India. In other words, following persons are not liable to pay wealth tax in respect of assets owned by them and which are located outside India:
(a) An individual who is not a citizen of India (whether resident and ordinarily resident or not).
(b)A resident but not ordinarily resident individual and a resident but not ordinarily resident Hindu Undivided Family.
(c) A non-resident (may be individual or HUF or company).
Assets covered under wealth-tax
Wealth tax is levied on the value of assets. The term “assets” is defined under Section 2(ea) of the Wealth-tax Act. Hence, wealth tax is levied only on those properties which are covered in the definition of the term “assets” as defined in the Wealth-tax Act. Following items are covered in the definition of the term “assets”.
1. Any building or land appurtenant thereto, whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise. It will also include a farm house situated within 25 kilometers from local limits of any municipality or a Cantonment Board. However, following buildings or land appurtenant thereto are not included in this category :
2. Motor cars (other than those used by the taxpayer in the business of running them on hire or held as stock-in-trade).
3. 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. However, this category does not include any of the above items held as stock-in-trade by the taxpayer.
4. Yachts, boats and aircrafts (other than those used by the taxpayer for commercial purposes).
5. Urban land (*), other than following :
(*) Urban land means a land situated:
a. Within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population of not less than 10,000;
b.Within range of following distance measured aerially from the local limits of any municipality or cantonment board:
i. not being more than 2 KMs, if population of such area is more than 10,000 but not exceeding 1 lakh;
ii. not being more than 6 KMs , if population of such area is more than 1 lakh but not exceeding 10 lakhs; or
iii. not being more than 8 KMs , if population of such area is more than 10 lakhs.
Net wealth to include certain assets
Generally, wealth tax is to be paid on assets owned by the taxpayer on the valuation date. However, in the following cases, though assets are held by other persons, yet they are to be included in the net wealth of the taxpayer, i.e., assets of other persons are clubbed with the wealth of the taxpayer.
›Assets transferred to the spouse, not being a transfer in connection with an agreement to live apart.
›Assets transferred by an individual to his/her son’s wife.
›Assets transferred to a person or an association of persons for the immediate or deferred benefit of the individual, his/her spouse or his/her son’s wife.
and where any such assets are once included in the net wealth of either parent, any such assets shall not be included in the net wealth of the other parent in any succeeding year unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do.
However, where a minor is admitted to the benefits of partnership in a firm, the value of the interest of such minor in the firm shall be included in the net wealth of the parent of the minor.
Further, if the converted property becomes the subject-matter of a total or a partial partition among members of the family, the converted or transferred property or any part thereof, which is received by the spouse of the transferor, is deemed to be the asset of the transferor and is includible in his wealth.
Assets exempt from wealth-tax
Following assets are exempt from wealth-tax, i.e., they are exempt assets:
› This exemption is available only to a person of Indian origin or a citizen of A person will be said to be of Indian origin if he or any of his parents or grandparents were born in un-divided India.
›Such person was residing in foreign country.
›Exemption is available at the time he returns to India, i.e., he is an Indian
›Exemption is available for a period 7 years (starting from the year in which he returns to India).
The above discussed exemption is available in respect of following assets:
Valuation of asset
Wealth tax is levied on the value of assets owned by the taxpayer on the valuation date, i.e., 31st March of the relevant year. Value of any asset liable to wealth-tax (other than cash) is to be determined in the manner prescribed in the Valuation Rules (i.e., rules given in Schedule III of Wealth-tax Act).
Some of the significant provisions of Wealth-tax Law
Republished with amendment.