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Complete guide to Wealth tax

Member (Account Deleted) Guest , 07 May 2010  
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Introduction to Wealth Tax Act 1957

Wealth Tax Rules 1957

 

ü     Wealth tax is a Direct Tax.

ü     It is levied by Central Government on few Persons.

ü     Power to Levy Wealth Tax is derived by Constitution of India.

ü     It means Taxes on Wealth.

 

 

 

Wealth Tax recognizes 5 types of wealth

1.     Wealth from House                                                          XXX

2.     Wealth from Motor Cars                                                  XXX

3.     Wealth from Jewellery                                                      XXX

4.     Wealth from Air/Water Vehicles                                       XXX

5.     Wealth from Land                                                            XXX              .             

Total Wealth                                                                   YYYYYYYYYYY

 

 

 

 

In Wealth Tax, Tax is always levied for 1 complete Financial Year(1/April to 31/March). This Financial Year is known as PREVIOUS YEAR.

Year next to Previous Year is known as ASSESSMENT YEAR.

 

 

 

Person on whom Wealth Tax is levied is known as an ASSESSEE.

 

 


Wealth Tax Chapter

 

Reason to levy wealth tax

To tax ------ Unproductive assets & bring about equality in society.

 

Persons liable to pay Wealth Tax

Wealth Tax shall be charged for value of ASSETS on Valuation Date to:

  1. Individual
  2. HUF
  3. Company

 

Persons not liable to pay Wealth Tax

Wealth Tax shall not be charged to:

  1. Company registered under section25 of companies Act 1956.
  2. Co-operative society
  3. Social Club
  4. Political Party
  5. Mutual Fund specified under section 10(23D) of Income Tax Act, 1961

 

Rate of Wealth Tax

Rate of Wealth Tax shall be 1% for wealth in excess of Rs.15 Lacs.

 

Valuation date

Means the last day of the previous year. i.e. 31st march.

All calculations of wealth shall be made at the midnight of 31st march.

 

Computation of Wealth Tax

Value of assets belonging to assessee                            =          XXX

Less: Exemption of assets under Section 5         =          (XXX)

Gross Wealth                                                               =          XXX

Less: Debts under Section 2(m)                        =          (XXX)

Net Wealth                                                                   =          XXX

Less: 15 Lacs                                                   =          (XXX)

Wealth Chargeable to Tax                                            =          XXX

 

Definition of Assets

Section 2(ea)

Assets, means

 

(i).                House

Any building or land appurtenant thereto,

Whether used for

Þ    residential purposes or

Þ    commercial purposes or

Þ    for the purpose of maintaining a guest house or

Þ    otherwise

It includes a farm house situated within 25 kilometers from local limits of any municipality or a Cantonment Board.

 

But does not include:

ü      A house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than Rs. 5 Lacs. ;

ü      Any house for residential or commercial purposes which forms part of stock-in-trade ;

ü      Any house which the assessee may occupy for the purposes of any business or profession carried on by him;

ü      Any residential property that has been let-out for a minimum period of 300 days in the previous year;

ü      Any property in the nature of commercial establishments or complexes;

 

(ii).              Motor cars

But does not include:

ü      Cars used by the assessee in the business of running them on hire.

ü      Cars used by the assessee as stock-in-trade ;

 

(iii).             Jewellery

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 :

But does not include:

ü      Jewellery used by the assessee as stock-in-trade ;

 

(iv).            Air/ Water Transport Vehicles

Yachts, boats and aircrafts

But does not include:

ü      Those held as stock-in-trade

ü      Those used by the assessee for commercial purposes)

 

(v).              urban land ;

Means land situated

(i) in any area which is comprised within the jurisdiction of a municipality or a cantonment board and which has a population of not less than 10000 according to the last preceding census of which the relevant figures have been published before the valuation date ; or

(ii) in any area within such distance, not being more than 8 kilometers from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette,

 

But does not include:

·        Land on which construction of building is not permissible under any law for the time being in force in which such land is situated.

·        Land occupied by any building which has been constructed with the approval appropriate authority

·        Any unused land held by assessee for industrial purposes for a period of 2 years from the date of its acquisition by him.

·        Any land held by assessee as Stock-in-trade for a period of 10 Years from the date of its acquisition by him.

 

Example 1

Mr. A purchased a plot of land on 1.2.2004 for industrial purposes. This land was not used by him.

Test whether this is taxable under wealth tax act 1957 on 31/march/2007.

 

Solution

1.2.2004          -           1.2.2005          -           1.2.2006

Valuation Date

Remarks

31.3.2003

Not an asset – As assessee did not have it

31.3.2004

Not an asset – As it was purchased for industrial purposes.

31.3.2005

Not an asset – As it was purchased for industrial purposes.

31.3.2006

It is an asset – As it 2 years passed and it was still unused

31.3.2007

It is an asset – As it 2 years passed and it was still unused

 

(vi).            Cash-in-hand

Means

In case of Individual and HUF   -           cash in excess of Rs. 50000

In the case of other persons                  -           any amount not recorded in the books of account.

 

Example 2

X Ltd. is engaged in construction of residential flats:

a)      Land in urban area (construction is not permissible as per municipal laws in force) Rs.35 Lacs

b)      Motor-Cars (used in business of running them on hire) Rs.700000

c)      Jewellery Rs. 1500000. Loan taken for purchasing this Rs. 1000000

d)      Cash balance (as recorded in books) Rs.225000

e)      Bank Balance Rs.350000

f)        Guest house Rs.600000

g)      Residential flats occupied by the Managing Director Rs. 1000000. The managing director is on a whole time appointment and is drawing a salary of Rs. 3 Lacs per month.

h)      Residential house were let out on hire for 200 Days of Rs. 800000

Compute Taxable Wealth on 31st march.

 

Solution

I.        Land in urban area                                      Not an asset

II.      Motor-Cars                                                            Not an asset

III.    Jewellery                                                               1500000

IV.    Cash balance                                                          Not an asset

V.      Bank Balance                                                         Not an asset

VI.    Guest house                                                            600000

VII.  Residential flats                                                       1000000

VIII.Residential house    (assume it not to be SIT )          800000

Total                                                                            3900000

Less: Debt                                                                    (1000000)

Net Wealth                                                                   2900000

 

Taxable wealth                                                 1400000

Wealth Tax @1%                                                         14000

 

Example 3

Mr. X an individual is engaged in construction of residential flats:

 

a)      Land in urban area (construction is not permissible as per municipal laws in force) Rs.35 Lacs

b)      Motor-Cars (used in business of running them on hire) Rs.700000

c)      Jewellery Rs. 1500000. Loan taken for purchasing this Rs. 1000000

d)      Cash balance (as recorded in books) Rs.225000

e)      Bank Balance Rs.350000

f)        Guest house Rs.600000

g)      Residential flats occupied by the manager Rs. 1000000. The manager is on a whole time appointment and is drawing a salary of Rs. 3 Lacs per annum.

h)      Residential house were let out on hire for 200 Days of Rs. 800000

Compute Taxable Wealth on 31st march.

Assume no exemption is considered by Mr.X

 

Solution

I.        Land in urban area                                      Not an asset

II.      Motor-Cars                                                            Not an asset

III.    Jewellery                                                               1500000

IV.    Cash balance                                                          175000

V.      Bank Balance                                                         Not an asset

VI.    Guest house                                                            600000

VII.  Residential flats                                                       1000000

VIII.Residential house    (assume it not to be SIT )          800000

Total                                                                            4075000

Less: Debt                                                                    (1000000)

Net Wealth                                                                   3075000

Taxable wealth                                                 1575000

Wealth Tax @1%                                                         15750

 

Example 4

X Ltd. is engaged in business of retail Jewellery:

a).    Land (construction is not permissible as per municipal laws in force) Rs.45 Lacs

b).    Motor-Cars (used in business) Rs.700000, Loan taken for purchasing this Rs. 300000

c).    Jewellery Rs. 1500000.

d).    Cash balance (as not recorded in books) Rs.445000

e).    Bank Balance (as not recorded in books) Rs.350000

f).     Residential house were let out on hire for 350 Days of Rs. 800000

g).    Yatch held for personal uses Rs. 100 Lacs

Compute Taxable Wealth on 31st march.

 

Solution

a).    Land in urban area                                      Not an asset

b).    Motor-Cars                                                            700000

c).    Jewellery (held as SIT)                                           Not an asset

d).    Cash balance                                                          445000

e).    Bank Balance                                                         Not an asset

f).     Residential house                                                    Not an asset

g).    Yatch                                                                     10000000

Total                                                                            11145000

Less: Debt                                                                    (300000)

Net Wealth                                                                   10845000

Exemptions

 

TRUST

Section 5(i)

Any property held under trust or other legal obligation for any public purpose of a charitable or religious nature in India shall be exempt from tax.

 

Co-Parcerners

Exemption under section 5(ii)

Share of a co-parcerner in HUF property is exempt, as tax on whole property is paid by Karta.

 

Ruler-Building

Exemption under section 5(iii)

Any building declared as official residence of a ruler by Central government shall be exempt from tax.

 

Ruler-Jewellery

Exemption under section 5(iv)

Jewellery in possession of any ruler, not being his personal property, which has been recognised as his heirloom by central government shall be exempt from tax.

 

Recognition is granted by Central government on following terms:

I.        Jewellery shall be permanently kept in India and shall not be removed outside India except for a purpose and period approved by CBDT.

II.     Reasonable steps shall be taken for keeping the Jewellery substantially in original shape.

III.   Reasonable facilities shall be allowed to government officer (authorized by CBDT) to examine the Jewellery as and when it deems fit.

 

Exemption under section 5(v)

ü       Person of Indian origin or Citizen of India who ordinarily residing in foreign country and

ü       who leaving such country has returned to India

ü       with the intention of permanently residing in India,

ü      THEN

ü       Money and assets brought by him into India and the value of assets acquired by him out of such moneys within 1 year immediately preceding the date of his return and at any time thereafter,

ü       Shall be exempt from tax for a period of 7 successive years.

 

Exemption under section 5(vi)

Individual or HUF having one house or part of house or plot of land upto 500 sq. meters shall be exempt from tax.

 

DEBTS

Section 2(m)

Debts owned by assessee on the valuation date are deductible if these debts are incurred on the assets included in the wealth.

 

Example 5

Mr. Wasim Akram has gold of Rs. 10 lacs &Silver biscuits of RS. 23 Lacs. & house of Rs. 50 Lacs.

Gold was purchased by him, by taking a loan of Rs. 2 Lacs.

Compute Taxable Wealth on 31st march.

 

Solution

Gold                 =                      1000000

Silver Biscuits   =                      2300000

House              =                      Exempt section 5(vi)

Gross Wealth   =                      3300000

Less Debts       =                      (200000)

Net Wealth       =                      3100000

 

Example 6

Mr. Wasim Akram has gold of Rs. 20 Lacs &Silver biscuits of RS.32 Lacs. & Plot of land (of 530 meters) for Rs. 150 Lacs. Shares of RIL Rs. 300000

Gold was purchased by him, by taking a loan of Rs. 11 Lacs on security of shares.

Compute Taxable Wealth on 31st march.

 

Solution

Gold                                                     =                      2000000

Silver Biscuits                                       =                      3200000

Plot of land (of 530 meters)                  =                      15000000

Shares                                                  =                      Not an asset

Gross Wealth                                       =                      20200000

Less Debts                                           =                      (1100000)

Net Wealth                                           =                      19100000

 

Example 7

Mr. Wasim Akram has 2 houses of

 

Value

Loan taken on this house

House in Bombay- House I

2000000

1400000

House in Delhi- House II

5000000

4900000

Gold was purchased by him, by taking a loan of Rs. 11 Lacs on security of shares.

Compute Taxable Wealth on 31st march.

 

Solution

Computation of wealth

Option 1 is better so we shall opt this.

Option 1

House I            =                      Exempt

House II           =                      5000000

Gross Wealth   =                      5000000

Less Debts       =                      (4900000)

Net Wealth       =                      100000

Option 2

House I            =                      2000000

House II           =                      Exempt

Gross Wealth   =                      2000000

Less Debts       =                      (1400000)

Net Wealth       =                      600000

 

VALUATION of ASSETS

I.     Valuation of immovable property

Schedule III

 

Step 1: Determination of Gross Maintainable Rent

Actual Rent received/ receivable for the year                                                                             =          XXX

ADD:

1/9 of Actual Rent received/ receivable for the year- if repairs are borne by tenant         =          XXX

Taxes in respect of the property agreed to be borne by tenant                            =          XXX

15% of Interest on deposit received from tenant – interest recovered                 =          XXX

 

Lease premium or non-refundable deposit received                                                       =          XXX

No. of years of lease

 

Any other obligation of owner met by tenant                                                                  =          XXX

ANNUAL RENT                                                                                                                     =          xxx

 

Gross Maintainable Rent shall be higher of:

ü      Annual rent

ü      Annual value assessed by Local Authority

 

Example 8

A house property is rented by owner for a rent of Rs. 20000 p.m for all 12 months.

Details are as follows:

1.      Repairs for Rs. 12000 were borne by tenant.

2.      Municipal Taxes are Rs. 120000, 50% of which are borne by tenant and rest by owner.

3.       Tenant has given an advance of Rs. 10 Lacs owner. Owner is paying an interest of 6% on deposit.

4.      Tenant has given him other benefits of Rs. 3000 monthly.

5.      Tenant has also given him a deposit of Rs. 500000, which is non-refundable. Lease term is 5 Years.

Compute Gross Maintainable Rent on 31st march.

 

Solution

Annual Rent                                          =          240000

Repairs                                                 =          26667

[240000/9]

Municipal taxes borne by tenant            =          60000

Security deposit                                    =          90000

[1000000 X (15-6)%]

other benefit                                         =          36000

[3000 x 12 ]

Non-refundable deposit                        =          100000

[500000/5]

Annual rent                                           =          552667

 

Example 9

A house property is rented by owner for a rent of Rs. 20000 p.m for 9 months till 31 December.

Details are as follows:

1.      Repairs for Rs. 12000 were borne by tenant./

2.      Municipal Taxes are Rs. 120000, 50% of which are borne by tenant and rest by owner.

3.       Tenant has given an advance of Rs. 10 Lacs owner. Owner is paying an interest of 6% on deposit.

4.      Tenant has given him other benefits of Rs. 3000 monthly.

5.      Tenant has also given him a deposit of Rs. 500000, which is non-refundable. Lease term is 5 Years.

Compute Gross Maintainable Rent on 31st march.

 

Solution

All things shall be computed for a year.

Actual Rent                                          =          240000

Repairs                                                 =          26667

[240000/9]

Municipal taxes borne by tenant            =          60000

Security deposit                                    =          90000

[100000 X (15-6)%]

other benefit                                         =          36000

[3000 x 12 ]

Non-refundable deposit                        =          100000

[500000/5]

Annual rent                                           =          552667

 

Example 10

Compute GMR in above question if annual rent is Rs. 552667 & annual value assessed by local authority is Rs. 400000. Compute Gross Maintainable Rent on 31st march.

Solution

GMR                                       =          552667

 

Example 11

Compute GMR in above question if annual rent is Rs. 552667 & annual value assessed by local authority is Rs. 800000. Compute Gross Maintainable Rent on 31st march.

 

Solution

GMR                                       =          800000

 

Example 12

A house property is rented by owner for a rent of Rs. 240000 p.a.

Details are as follows:

1.      Repairs for Rs. 42000 were borne by tenant.

2.      Municipal Taxes are Rs. 120000, 30% of which are borne by tenant and rest by owner.

3.       Tenant has given an advance of Rs. 10 Lacs owner. Owner is paying an interest of 2% on such deposit.

4.      Tenant has given him other benefits of Rs. 48000 yearly.

5.      Tenant has also given him a deposit of Rs. 1200000, which is non-refundable. Lease term is 3 Years.

If annual value assessed by local authority is Rs. 800000, Compute Gross Maintainable Rent on 31st march.

 

Step 2: Determination of Net Maintainable Rent

GMR                                                                                                                           =          XXX

Less: 15% of GMR                                                                                                      =          (xxx)

Less: Municipal taxes on accrual basis (whether paid by owner or tenant)                      =          (xxx)

Net Maintainable Rent                                                                                      =          XXX

 

Example 13

GMR                           =          360000

Municipal taxes             =          30000

50% of municipal taxes are paid by tenant, rent are still unpaid.

Compute Net Maintainable Rent on 31st march.

 

Solution

GMR                                                                                                                           =          360000

Less: 15% of GMR                                                                                                      =          (54000)

Less: Municipal taxes on accrual basis (whether paid by owner or tenant)                      =          (30000)

Net Maintainable Rent                                                                                      =          276000

 

Example 14

Annual Rent of property                        =          200000

Annual value as per local authority         =          220000

Municipal taxes             =          3000

50% of municipal taxes are paid by tenant, rent are still unpaid.

Compute Net Maintainable Rent on 31st march.

 

Solution

GMR shall be higher of                                                

Þ    200000

Þ    220000

 

GMR                                                                                                                           =          220000

Less: 15% of GMR                                                                                                      =          (33000)

Less: Municipal taxes on accrual basis (whether paid by owner or tenant)                      =          (3000)

Net Maintainable Rent                                                                                      =          184000

 

Example 15

A house property is rented by owner for a rent of Rs. 30000 p.m for 9 months till 31 December.

Details are as follows:

  1. Repairs for Rs. 12000 were borne by tenant.
  2. Municipal Taxes are Rs. 20000, 50% of which are borne by tenant and rest by owner.

Annual value assessed by local authority is Rs.500000

Compute Net Maintainable Rent on 31st march.

 

Solution

All things shall be computed for a year.

Rent                                                     =          360000

Repairs                                                 =          40000

[360000/9]

Municipal taxes borne by tenant            =          10000

Annual rent                                           =          410000

Annual value assessed by local authority is Rs.500000

GMR                                                                                                                           =          500000

Less: 15% of GMR                                                                                                      =          (75000)

Less: Municipal taxes on accrual basis (whether paid by owner or tenant)                      =          (20000)

Net Maintainable Rent                                                                                      =          405000

 

 

Step 3: Determination Value as per Rule 3, 4 & 5 of Schedule III

Value as per Rule 3, 4 & 5 of Schedule III shall be higher of following:

  1. NMR X Capitalisation factor (12.5/10/8)
  2. Cost of Construction + Cost of Improvement

 

Provided Value as per Rule 3, 4 & 5 of Schedule III shall be NMR X Capitalisation factor (12.5/10/8), if all the following conditions are fulfilled:

ü      One house

ü      Exclusively used by assessee for own residential purposes

ü      House at Delhi/Bombay/Calcutta/Madras --- Cost of Construction + Cost of Improvement does not exceed 50 Lacs

ü      House at any other place  --- Cost of Construction + Cost of Improvement does not exceed 25 Lacs

 

Capitalisation factor (12.5/10/ 8)

Property

Capitalisation Factor

Property is constructed on Freehold Land

12.5

Property is constructed on Leasehold Land, unexpired period of lease on valuation date > = 50 Yrs

10

Property is constructed on Leasehold Land, unexpired period of lease on valuation date < 50 Yrs

8

 

Example 16

Annual Rent of property                        =          200000

Annual value as per local authority         =          220000

Municipal taxes             =          3000

50% of municipal taxes are paid by tenant, rent are still unpaid.

Property is built on a freehold land, for a total cost of Rs.75 Lacs

Compute Value as per Rule 3, 4 & 5

 

Solution

GMR shall be higher of                                                

Þ    200000

Þ    220000

GMR                                                                                                                           =          220000

Less: 15% of GMR                                                                                                      =          (33000)

Less: Municipal taxes on accrual basis (whether paid by owner or tenant)                      =          (3000)

Net Maintainable Rent                                                                                      =          184000

 

Value as per Rule 3, 4 & 5 of Schedule III shall be higher of following:              =          7500000

Þ    184000 X 12.5            =          2300000

Þ    7500000

Step 4: Adjustment for un-built area as per Rule 6

 

Value as per Rule 3, 4 & 5 of Schedule III                                            =          XXX

Add: Adjustment for un-built area                                                         =          XXX

Value after Rule 6                                                                                 =          xxx

 

Rule 6 shall be applicable only where:::::  Un-built area > Specified area

 

Percentage of Default

Addition in value

Upto 5%

NIL

Above 5% Upto 10%

20% of value as per rule 3, 4 & 5

Above 10% Upto 15%

30% of value as per rule 3, 4 & 5

Above 15% Upto 20%

40% of value as per rule 3, 4 & 5

Above 20%

Value shall be FMV for property

 

Percentage of Default                =          Un-built area – Specified area  x 100

                                                                        Aggregate area

 

Specified area in general terms mean permissible un-built area.

Specified area is :

  1. Property is at Delhi/Bombay/Calcutta/Madras   – 60% aggregate area.
  2. Property is at specified cities                                         – 65% aggregate area.
  3. Property is at other cities                                               – 70% aggregate area.

 

Step 5: Adjustment for unearned increase in value of land as per Rule 7

 

Value as per Rule 3, 4, 5 & 6                                                                                       =          xxx

Less: Lower of following:                                                                                              =          (xxx)

Þ    Amount of unearned increase to be claimed by government

Þ    50% of Value as per Rule 3, 4, 5 & 6

Value for Immovable property                                                                          =          XXXX

 

‘Unearned increase’      means the difference between value of Land on valuation date as determined by government and the amount of premium paid or payable to government for the lease of land.

 

Example 17

Mr. X is an owner of commercial house built on a plot of 1000 sq. yards at Delhi.

The plot has been taken on a lease from government. He has built up in 1975, 240sq. yards at a cost of Rs. 170000. House has been let for commercial purposes to tenant @ 1000 p.m.

The tenant has agreed to bear cost of all repairs and has given a refundable deposit of Rs.20000. Municipal taxes levied are Rs.1080.

Municipal valuation by local authority Rs.9000

DDA has notified Rs.300000 as unearned increase out of which 40% is payable to government.

Unexpired period of lease is 79 Years.

Compute value of house property.

 

Solution

Actual Rent                                          =          12000

Repairs                                                 =          1333

[12000/9]

Security deposit                                    =          3000

[20000 X 15%]

Annual rent                                           =          16333

Annual value assessed by local authority is Rs.9000

GMR                                                                                                                           =          16333

Less: 15% of GMR                                                                                                      =          (2450)

Less: Municipal taxes on accrual basis (whether paid by owner or tenant)                      =          (1080)

Net Maintainable Rent                                                                                      =          12803

 

Value as per Rule 3, 4 & 5 of Schedule III shall be higher of following:              =          170000

Þ    12803 X 10     =          128030

Þ    170000

Add: Adjustment of un-built are                                                                                    =          68000

[40% x 170000]

Workings

Unbuilt area= 1000-240 = 760

Percentage of Default    =Un-built area – Specified area  x 100

                                                Aggregate area

                                    =          (760 - 60%1000) x 100           =          16%

                                                            1000

Total                                                                                                                            =          238000

Less: unearned increase                                                                                                =          (119000)

Workings

Least of the following shall be deductible

Þ    40% x 300000 = 120000

Þ    50% x 238000 = 119000

Value of House                                                                                                 =          119000

 

Example 18

Mr. X is an owner of commercial house built on a plot of 1000 sq. yards at Bombay.

The plot has been taken on a lease from government. He has built up in 1999, 240sq. yards at a cost of Rs. 180000. House has been let for commercial purposes to tenant @ 2000 p.m.

The tenant has agreed to bear cost of all repairs and has given a refundable deposit of Rs.50000. Municipal taxes levied are Rs.5000, 50% borne by tenant.

Municipal valuation by local authority Rs.40000

DDA has notified Rs.300000 as unearned increase out of which 30% is payable to government.

Unexpired period of lease is 29 Years.

Compute value of house property.

 

Solution

Actual Rent                                          =          24000

Repairs                                                 =          2666

[24000/9]

Municipal taxes borne by tenant            =          2500

Security deposit                                    =          7500

[50000 X 15%]

Annual rent                                           =          36666

Annual value assessed by local authority is Rs.40000

GMR                                                                                                                           =          40000

Less: 15% of GMR                                                                                                      =          (6000)

Less: Municipal taxes on accrual basis (whether paid by owner or tenant)                      =          (5000)

Net Maintainable Rent                                                                                      =          29000

Value as per Rule 3, 4 & 5 of Schedule III shall be higher of following:              =          180000

Þ    29000 X 8       =          232000

Þ    180000

Add: Adjustment of un-built are                                                                                    =          72000

[40% x 180000]

Workings

Unbuilt area= 1000-240 = 760

Percentage of Default    =Un-built area – Specified area  x 100

                                                Aggregate area

                                    =          (760 - 60% x 1000) x 100       =          16%

                                                            1000

Total                                                                                                                            =          252000

Less: unearned increase                                                                                                =          (90000)

Workings

Least of the following shall be deductible

Þ    30% x 300000 = 90000

Þ    50% x 252000 = 126000

Value of House                                                                                                 =          162000

 

Example 19

Mr. X is an owner of commercial house built on a plot of 900 sq. yards at Bombay.

The plot has been taken on a lease from government. He has built up in 1999, 250sq. yards at a cost of Rs. 200000. House has been let for commercial purposes to tenant @ 4000 p.m.

The tenant has agreed to bear cost of all repairs and has given a refundable deposit of Rs.150000. Municipal taxes levied are Rs.15000, 40% borne by tenant.

Municipal valuation by local authority Rs.40000

DDA has notified Rs.500000 as unearned increase out of which 70% is payable to government.

Unexpired period of lease is 89 Years.

Compute value of house property.

 

Example 20

X is the owner of a house which is constructed on leasehold land acquired from DDA. He has let out this house for a rent of Rs.12000 p.m.

60% of municipal taxes shall be paid by tenant

Cost of repairs shall be borne by tenant

Rs. 100000 of advance shall be given by tenant, this shall be refundable deposit.

Premium of Rs. 50000 shall be paid for leasing the property for 5 years.

Annual value assessed by the local authority is Rs.100000 and taxes levied shall be Rs.15000.

Percentage of default shall be 12.33%.

Cost of building (including land) in 1980 was Rs. 10 Lacs

X paid Rs.80000 for acquisition of land but now DDA’s value of land is RS. 4Lacs for the purposes of computing unearned increase. 50% of which shall be paid to government.

Unexpired period of lease shall be 85 years.

Compute value of house property.

 

Solution

Actual Rent                                          =          144000

Repairs                                                 =          16000

[144000/9]

Municipal taxes borne by tenant            =          9000

Lease premium                         =          10000

[50000/5]

Security deposit                                    =          15000

[100000 X 15%]

Annual rent                                           =          194000

Annual value assessed by local authority is Rs.100000

GMR                                                                                                                           =          194000

Less: 15% of GMR                                                                                                      =          (29100)

Less: Municipal taxes on accrual basis (whether paid by owner or tenant)                      =          (15000)

Net Maintainable Rent                                                                                      =          149900

 

Value as per Rule 3, 4 & 5 of Schedule III shall be higher of following:              =          1499000

Þ    149900 X 10   =          1499000

Þ    1000000

Add: Adjustment of un-built are                                                                                    =          449700

[30% x 1499000]

Total                                                                                                                            =          1948700

Less: unearned increase                                                                                                =          (160000)

Workings

Least of the following shall be deductible

Þ    50% x (400000-80000) = 160000

Þ    50% x 252000 = 974350

Value of House                                                                                                 =          1788700

 

II.  Valuation of all other property

Schedule III

Shall be Fair market value of property

 

CHART for illustrations

Commercial flats lying vacant

Asset

Commercial flats on rent to a Company

Asset

Factory Building in which production is carried on

Not an Asset

Commercial building in which assessee has an office

Not an Asset

Commercial building held as Stock-in Trade

Not an Asset

Residential House given to employee of a company

Not an Asset, if his salary is less than 5 lacs

Residential House given to employee of a firm

Asset

Guest house for use of company’s guests

Asset

Residential house let out for 280 Days

Asset

Residential house let out for 340 Days

Not an Asset

Commercial flat let out for 340 Days

Asset

Commercial complex

Not an Asset

 

 

Motor cars used for transport of the employees

Asset

Motor cars held for hire

Not an Asset

Motor cars held for vehicle dealer

Not an Asset

 

 

Jewellery held by Jeweler

Not an Asset

Gold held by a person

Asset

Silver furniture held by a person

Asset

Loose Diamonds

 

 

 

Aircraft held by company for its employees

Asset

Helicopter held by company for its employees

Asset

 

 

Cash of Rs. 100000 held by an individual

Rs.50000 is asset

Cash of Rs. 100000 held by an Company, unrecorded

Asset

Cash of Rs. 100000 held by an Company, recorded in books

Not an Asset

 

 

Land held as stock-in-trade

Not an Asset


THEORY CONCEPTs

 

Deemed Assets

Section 4

In computing the net wealth of an individual, there shall be included following assets, as belonging to that INDIVIDUAL, the value of assets which on the valuation date are held –

 

1.      By the SPOUSE of such individual to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration.

Provided assets transferred under agreement to live apart this provision shall not apply.

 

2.      By a MINOR CHILD,

Exceptions

ü      minor child suffering from any disability of the nature specified in section 80U of the Income-tax Act,

ü      minor married daughter, of such individual,

 

3.      By an AOP to whom such assets have been transferred by the individual directly or indirectly, otherwise than for adequate consideration for benefit of the INDIVIDUAL, his or her SPOUSE.

 

4.      By an AOP to whom such assets have been transferred by the individual under a REVOCABLE transfer, (i.e. a transfer which is not for the life or under which transferor has certain right. JHOOTA transfer)

 

5.      By the SON'S WIFE, of such individual, to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration,

 

6.      By an AOP to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration for the benefit of SON'S WIFE.

 

7.      Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family, directly or indirectly, to the family otherwise than for adequate consideration then the converted property shall be deemed to be assets belonging to the individual and not to the family;

 

8.      Holder of Impartible state (KARTA)

 

9.      Property allotted to Members

Whenever property is allotted or leased by a co-operative society, company or other association of persons to its members under a house building scheme then such member shall be Deemed Owner.

 

10.  Possession transferred

If the purchaser has paid the consideration to seller & has taken the possession as per Section 53A of the Transfer of Property Act, 1882, then Purchaser shall be the Deemed owner

 


Dear Friends,

One of the stories, I read in Elementary school but unable to understand its meaning till few months back when I accidentally re-read it on net. Today I can feel this.

 

Hope you will remember it for life

 

Rajat Mohan

 

 

 

 

WILMA’s story

A girl named Wilma was borne into a very poor family.

At 4 yrs of age she had double pneumonia with scarlet fever, a deadly combination which left her paralyzed with polio.

Doctor’s said she would never be able to walk again in her life. But her mother encouraged her to do whatever she wants to do.

Wilma said “I want to be fastest woman on this earth”. At 9 yrs of age against the advice of doctors she removed her support and took the first step. At the age of 13 Yrs, she entered her first race and came last, then she went for second, third, fourth and every time came way way last until a time when she ________.

 

1960: It was a day of Olympics, Wilma was to compete against a woman named Jutta Heine who is never been beaten in her life.

First event of 100 meters race Wilma won a gold defeating Jutta.

Second event of 200 meters race Wilma won her second gold by defeating Jutta again.

Third event of 400 meters relay, it was the last lap in which both Wilma and jutta were representing their teams. Baton was passed, but it dropped from Wilma’s hand jutta was running on other end. Wilma lifted the baton again and ran like a machine to win her third gold by defeating Jutta once again.

 

That night was special a paralytic woman showed the World,

“She is the fastest Woman on HISTORY”.

 

In July 1994, shortly after her mother’s death, Wilma Rudolph was diagnosed with brain and throat cancer. On November 12, 1994, at age 54, she died of cancer in her home

 

 

Rajat Mohan

B.Com(H), A.C.A., D.I.S.A.

 

MOHAN AGGARWAL & ASSOCIATES

Chartered Accountants

F-31 D.B. Gupta Market, Karol Bagh, New Delhi

Office Phone: 011-23672609 / 23535809

Mobile: 9910044223

Web url: www.delhicamohan.com

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