The Direct Taxes Code (DTC) Bill proposes to raise the exemption limit for imposing wealth tax to Rs 1 crore from Rs 30 lakh at present, a move that will help a lot of taxpayers avoid the levy. The Rs 1 crore limit proposed in the Direct Taxes Code Bill, however, is much less that the exemption of Rs 50 crore proposed in the original draft.
The DTC proposes to levy wealth tax at the rate of 1 per cent. Broadly, net wealth refers to taxable wealth, which means the excess of assets over debts. The tax is levied only on specified assets under the Act and not on all assets.
According the Direct Taxes Code Bill, the government has proposed to replace the current Wealth Tax Act, 1957, with a new provision which would expand the taxpayer ambit to every assessee with net wealth over Rs 1 crore, except non-profit organisations.
The Wealth Tax Act, 1957, only listed individuals, Hindu Undivided Family (HUF) and companies for the purpose of computation of tax liability.
“This would benefit the small players, as the increase in exemption slab would keep a lot of them away from the tax liability,” Deloitte Partner Sunil Shah said.
The DTC also proposes to increase the scope of assets liable for wealth tax calculation. Under the current Act, the assets which come for calculation are jewellery, urban land, buildings and automotives.
The DTC proposes to expand the taxable assets to include deposits in banks located outside India, interest in foreign trusts and shares held in a controlled foreign company.
It would also include cash-in-hand in excess of Rs 2 lakh in case of individuals and HUF, watches with a value in excess of Rs 50,000 and also archaeological collections, or any other works of art.
Tax experts said while the DTC would benefit small taxpayers, the scope of assets for calculation of wealth tax has increased, which will lead to more individuals and companies coming under the purview of tax.
Under the current method of calculation, cash-in-hand in excess of Rs 50,000 in case of an individual and HUF and yachts, boats and aircraft used by a taxpayer for personal purposes are considered for calculation of net wealth.