History of Wealth Tax Act
Wealth-tax Act was introduced w.e.f. 01.04.1957 on the recommendation of Prof. Nicholas Kaldor forachieving twin major objectives of reducing inequalities and helping the enforcement of Income-tax Act through cross checks.
Accordingly, all the assets of the assessees were taken into account for computation of net-wealth. The levy of wealth-tax wasthoroughly revised on the recommendation of Tax Reform Committee headed by Raja J. Chelliah vide Finance Act, 1992 with
Effect from 01.04.1993 The Chelliah Committee had recommended abolition of wealth-tax in respect of all items of wealth otherthan those which can be regarded as unproductive forms of wealth or other items whose possession could legitimately bediscouraged in the social interest.
Current Position of Wealth Tax Levy
Wealth-tax is levied on an individual or HUF or company, if the net wealth of such person exceeds Rs.30 lakh onthe valuation date, i.e. last date of the previous year.Wealth tax is charged @ 1% on net wealth exceeding Rs. 30 Lakh.
For the purpose of computation of taxable net wealth, only few specified assetsare taken into account. Section to 2(e)(a) specified following assets to be consider for levy of wealth tax:
1. Motor Cars (Other than used by the assessee in the business of running them on hire or used by the assessee as stock in trade)
2. Yachts, boats and aircrafts (other than used by the assessee for commercial purposes)
3. Jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal. (other than used by the assessee as stock in trade)
4. Any building or land (with some exceptions like):
a. One residential home is exempt from Wealth Tax or urban land measuring 500 sqm or less.
b. Any residential property which has been let out for a minimum period of 300 days in the previous year
c. Any house occupied by the assessee for the purpose of any business or profession carried on by him
d. Commercial establishments or complexes
5. Cash in excess of Rs. 50000 in case of individual or HUF
6. All above assets transferred without consideration to family etc.
7. Assets of minor child barring some exception
8. Value of assets in partnership firm to be clubbed with the assets of partner
The actual collection from the levy of wealth-tax during the financial year 2011-12 was Rs.788.67 crore and during thefinancial year 2012-13 was Rs.844.12 croreonly. The number of wealth-tax assessee was around 1.15 lakh in 2011-12.
Although only a nominal amount of revenue is collected from the levy of wealth-tax, this levy creates a significant amount ofcompliance burden on the assessees as well as administrative burden on the department. This is because the assesseesare required to value the assets as per the provisions of Wealth-tax Rules for computation of net wealth and for certain assetslike jewellery, they are required to obtain valuation report from the registered valuer.
Further, the assets which are specifiedfor levy of wealth-tax, being unproductive, such as jewellery, luxury cars, etc. are difficult to be tracked and this gives anopportunity to the assessees to under report/under value the assets which are liable for wealth-tax.
Due to this, the collectionof wealth-tax over the years has not shown any significant growth and has only resulted into disproportionate complianceburden on the assessees and administrative burden on the department.
Road Map to abolish Wealth Tax
It is, therefore, decided to abolish the levy of wealthtax under the Wealth-tax Act, 1957 with effect from the 1st April, 2016.
The objective of taxing high networth persons shall be achieved by levying asurcharge on tax payer earning higher income as levy of surcharge is easy tocollect & monitor and also does not result into any compliance burden on the assessee and administrative burden on thedepartment.
Further, income tax returns are being suitably modified for capturing information relating to assets which is currently required to be furnished in thewealth-tax return.
Benefits of above amendment
1. For government it is easy to control tax collection and management without adverse impact on tax collection.
2. For assessee – compliance burden is lower.
This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year2016-17 and subsequent assessment years. This means for FY 2014-15 assessee shall furnished return in regular manner, i.e., two returns – one ITR and wealth tax return. From FY 2015-16 and onwards assessee needs to submit ITR only.
Tags Income Tax