Wealth Tax, Exemptions

11/05/2020 0 By indiafreenotes

Wealth tax is imposed on the richer section of the society. The intention of doing so is to bring parity amongst the taxpayers. However, wealth tax was abolished in the budget of 2015 (effective FY 2015-16) as the cost incurred for recovering taxes was more than the benefit is derived. Abolishing the wealth tax also simplified the tax structure. As an alternative to the wealth tax, the finance minister hiked the surcharge from 2% to 12% for the super rich section. Individuals with an income of above Rs.1 crore and companies with an income of over Rs.10 crore fall under the ambit of the super-rich segment.

Wealth tax is applicable to individuals, HUFs, and companies. The deciding factor for applicability of wealth tax is the residential status. The thumb rule is the resident Indians are subject to wealth tax on their global assets. However, NRI’s fall under the ambit of wealth tax for the assets held in India.

If the total net wealth of an individual, HUF or company exceeds Rs. 30 lakhs, on the valuation date, tax @1% will be leviable on the amount in excess of Rs. 30 lakhs.  Every person whose net wealth exceeds such limit shall furnish a return of net wealth. The due date is same as that of Income tax return.

Components of Wealth

Assets:An asset is a resource which is held and has future economic benefit

  1. Any building or land appurtenant whether used for residential/ other purposes, but doesn’t include:
  2. House allotted by accompanying/ employer to be used exclusively for residential purposes, where the gross total salary of the assessee is less than Rs.10 lakhs
  3. House which forms part of Stock in trade
  4. House occupied by the assessee for business/ professional purpose
  5. Residential property let out for minimum of 300 days in the previous year
  6. Property in the nature of commercial establishment or complex
  7. Motorcars, other than those used for running them on hire or those held as stock in trade
  8. Jewellery, bullion, furniture, utensils or other articles made fully/ partly of gold, silver, platinum or such precious metals
  9. Yachts, boats and aircrafts other than those used for commercial purpose
  10. Urban land situated in the Specified area, other than:
  11. Those classified as agricultural land and used for such purpose
  12. Those in which building construction is not permissible
  13. Land occupied by building, which was constructed with the approval of the appropriate authority
  14. Unused land held by assessee for industrial purposes for a period of 2 years from the date of acquisition.
  15. Land held by the assessee as stock in trade for over 10 years from the date of acquisition
  16. Cash in hand in excess of Rs. 50,000

Deemed Assets: These are assets, though not legally belonging to the assessee, are clubbed as his assets while computing his net wealth

  1. Assets transferred to Spouse otherwise than in connection with agreement to live apart.
  2. Assets transferred to a person/ Association of Persons for the immediate or deferred benefit of assessee or spouse.
  3. Assets transferred to son’s wife.
  4. Assets transferred to a person/ Association of Persons for the immediate or deferred benefit of son’s wife.
  5. Assets held by minor child other than those acquired using the skills of minor or those belonging to a minor with disability.
  6. Interest of assessee in the asset of a firm/association of people where he is a partner or member.
  7. Self-acquired property that is converted as the property of the family/transferred with inadequate consideration.
  8. Assets transferred under revocable transfer.
  9. Gift of money made in books maintained by assessee, by way of mere book entries.
  • Impartible assets held by assessee
  • Building allotted to assessee under a Homebuilding scheme.
  • Building in which a person is allowed to take/ retain possession in part performance of a contract.
  • Building for which assessee has acquired the rights.

Exempted Assets: Assets which are not considered as a part of wealth for the computation of wealth tax

  1. Property held under trust/ for the purpose of charitable/religious purposes.
  2. Interest in coparcenary property of Hindu Undivided family.
  3. Jewellery in possession of ruler not being his personal property.
  4. Money/Asset brought by a person of Indian origin/by an Indian citizen.
  5. In case of an Individual/HUF, a house/ part of house or plot of land not exceeding 50sq.mtr in area.

Wealth tax Rules

Primarily, wealth tax rules take the resident status of an individual into consideration. All residents of India are subjected to pay wealth tax on the assets they own in India along with their global assets. With the case of NRI’s and foreigners, they have to pay wealth tax towards the assets they own in India only.

The definition of ‘assets’ has been defined by the Wealth Tax Act as:

  • Any building/ land/ apartment, whether used for residential or commercial purposes or for maintaining a guest house or otherwise. It also includes a farm house situated within 25 kilometers from local limits of any municipality or a Cantonment Board. But there exist a few exceptions when it comes to buildings, land or apartments, which are not included in this category as per the law.
  • Motor cars (other than those used by the taxpayer in the business of running them on hire or held as stock-in-trade).
  • Jewelry, 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. This category, however, is not inclusive of any of the above items held as stock-in-trade by the taxpayer.
  • Yachts, boats and aircrafts (except for those used by the taxpayer for commercial purposes).
  • Urban land (referring to the definition as per law), other than the following:
  • Land on which construction of a building is not permissible under any law for the time being in force; or Any land on which construction is done with the approval of the appropriate authority; or

    • Any unused land held by the taxpayer for industrial purposes for a period of two years from the date of its acquisition by him; or
    • Any land held by the taxpayer as stock-in-trade for a period of ten years from the date of its acquisition by him.
    • Land classified as agricultural land in the records of the Government and which is used for agricultural purpose.