Our tax gurus did not seem to have dug too much in to the wealth tax realm to unearth the pits and pot holes except the voice raised over the higher threshold postulated in the provisions.


The direct tax code is unique in its approach in so far it prescribes a threshold limit of Rs.50 Crore. But it is to be understood only in respect of two taxable entities namely: 1.Individuals and 2. Hindu Undivided Family. However, the third taxable entity which is private discretionary trust is not treated at par for this limit of basic exemption.

The threshold limit does not apply to discretionary trusts which shall have to shell out tax on their net wealth of any amount which looks somewhat misplaced in the scheme of the DTC Bill, 2009 so far as it relates to Part-D of Chapter VIII.

The Code prescribes the taxable entities under S.101 that includes besides, Individual and HUF, the private discretionary trust. It also includes the interest of these persons in unincorporated bodies, if any, while computing their net wealth as per S.103. Unincorporated Bodies includes firms, association of persons and body of individuals as per discussion paper Chapter-XIV.

The companies which are taxable under wealth tax are no longer taxable to wealth tax under the DTC Bill, 2009. AOP were taxable as individual if their shares of members are indeterminate or unknown under the existing provisions of wealth tax but the same is not specifically mentioned so by the Code as the interest of the participants is only sought to be included in their net wealth and such AOPs are not defined as a separate taxable class.


There are also deeming provisions as is there in the Wealth Tax Act, 1957 but there are lesser exemptions when compared to the existing ones under the present W.T. Act.

The exemption with respect to any one property is contained under S.102 under clause (f) which speaks of a house or a part of house or a plot of land belonging to an individual or HUF which is acquired or constructed before 1st day of April, 2000. Further, it is a very harsh provision for those who acquire such property on or after 1st of April, 2000 as they would not be entitled to avail this exemption. This may be open to severe criticism.

In the context of present day when the government wants to achieve a higher GDP rate and knowing it quite well that the activities in the housing and construction sector set a ripple effect on the economy, the non grant of exemption to any one built up property or plot of land shall have disastrous effect and even go to discriminates one class against the other class of same taxable entity.

The net wealth is computed as on the valuation date in respect of aggregating of all assets wherever located after deducting there-from the aggregate of the value debts as on the valuation date which the person owes in relation to the said assets.

There appears to be significant advantage to have assets out of debts as also the position under the present regime than to have assets without debt obligation in respect of assets included in the computation of net wealth.

There are only six exemptions but the real exemption that matters to an individual is the above one in respect of a house or part of a house or a plot acquired or constructed before specified date that too is mired or shall be so mired in controversy. The stalwarts in the field of taxation have not read too much in to this so far as they believe that current tax threshold limit is set to too high and is bound to take at least ninety five percent of the wealth tax assesses out of the tax net. The revenues  from the wealth tax which was to the tune of Rs.144 Crore in 2004-05 increased to Rs.385 Crore in 2008-09 but in the current scenario of increased threshold limit postulated by DTC it is likely to be very less. The enhanced limit has been set because of the reduction in exemptions as per current taxation policy of the framers.

The exemption in respect of the property held under trust by a person for carrying of permitted welfare activities and the one in respect of interest in coparcenary property of any HUF of which the person is a member are consequential as HUF is taxed as an entity comprising of members.

Building or jewellery being his heirloom and in possession of a Ruler is excluded in specified circumstances.

There is no inclusion in respect of value of assets located outside India which belong to HUF or Individual when these persons are non resident in India or when person is non-citizen of India. Here status and citizenship matters when assets are located outside India.


The valuation of assets other than cash shall be determined in prescribed manner.

The valuation of financial assets shall be at cost or market price whichever is lower as per the discussion paper.

The exclusion of cash in hand up to Rs.50000 as presently provided in Wealth Tax Act., 1957 is not there in the Direct tax Code Bill, 2009.


While it is pertinent to observe that the discussion paper includes under exempted assets, the assets used as stock in trade but the same does not find any mention in the DTC Bill, 2009. This appears to be an anomaly which appears to have crept in unknowingly. This DTC Bill had been framed in entire exclusivity and put in public domain later on therefore the results are not far to seek.


The deeming provisions are contained in S.103 of the Code which seeks to include in the net wealth of the person the assets transferred to spouse or minor child excluding, being a person with disability. The clause is not sufficiently worded if it is compared to the wordings used in S. 8(1)(b) which are more clear in respect of disability of the minor. The language in S. 8(1)(b) is more direct and meaningful.

But there is one significant aspect to observe here in clause (ii) of (a) of S. 103(1) as in respect of minor child, the clause does not speak of inadequate consideration. Therefore the assets held by minor in whatever manner are to be includible in the net wealth of the person except the ones referred to in S. 8(1) (b) (i) and (ii) acquired through special skill or manual labour of the minor.

Clause (iii) of (a) to S. 103(1) while speaking of transfer by person of assets without consideration also refers to the spouse of the individual and not to the minor of such individual. Deeming provision refers to transfer to a trust by the individual if the transfer is revocable during the life time of the beneficiary. In case of transfer to a person other than trust by the individual and the transfer of assets is revocable also, falls in deeming provision.

Value of assets transferred to son’s wife or for the benefit of son’s wife where transferred to any person or association of person is blissfully not incorporated under the Direct Tax Code Bill, 2009.

The value of any converted property is to be included in the net wealth under S. 103(b) but the opening para in (a) of S.103 also speaks of the asset held in the form they were transferred or otherwise.

The rate of tax at which the net wealth of taxable person shall be charged is 0.25% instead of the present rate of 1% over threshold limit of Rs.30lacs.


DTC Bill, 2009 had been prepared in utmost secrecy had resulted in controversies of avoidable nature some drafting errors which would have not erupted had there been proper discussions within the ministry and the concerned departments like CBDT, the Officers of the Revenue Department. The wealth tax threshold limit with exemption granted to any one property acquired or held before 1st of April, 2000, though disastrous cut off date, is bound to erode the tax base. The next best thing to happen is the simultaneous reduction of tax rate from 1% to 0.25% of taxable net wealth which also would hamper tax revenues from wealth tax. The present revenues are not very significant. In the present circumstances is it worthwhile to have the wealth tax at all or allow the non filers or non declarers to enjoy complete immunity with such a higher threshold limit!


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January 2021