WEALTH TAX AT A GLANCE
Wealth Tax Act came into force on 1st April 1957. It is applicable to the whole of India. Under this Act tax is charged at the rate of 1% on the amount by which the net wealth of the assessee exceeds rupees fifteen lakhs on the valuation date. Only an Individual, Hndu Undivided Family and a Company are chargeable to wealth tax.As per section 45 of the Act, the following assessees are specifically excluded from the levy of wealth tax -
a) any company registered under section 25 of the Indian Companies Act,1956;
b) any cooperative society;
c) any social club;
d) any political party;
e) a mutual fund specified under section 10(23D) of the Income Tax Act.
Net wealth of the assessee as on valuation date is chargeable to wealth tax. Valuation date is 31st March of the relevant previous year. The expressions ‘assessment year’ and ‘previous year’ would have the same meaning as specified in Income Tax Act. Where there is a change of ownership on the valuation date i.e. 31st March, it is the net wealth at the last moment of that day and not the first moment or during the day which shall be the subject of assessment under Wealth Tax Act. This is because the valuation date is a continuous period starting at the first moment and ending at the last moment of a certain day and therefore net wealth shall be taken at the last moment of the valuation date.
Chargeability of Wealth Tax
Incidence of tax in the case of an individual depends upon his residential status and nationality. Whereas in the case of a Hindu Undivided Family and company it depends upon the residential status. Residential status of an assessee is to be judged by the same principles as laid down in section 6 of the Income Tax Act.
In case of an individual who is a citizen of India and his residential status is resident and ordinary resident, the net wealth taxable under the Wealth Tax Act would include the aggregate values of all assets located inside and outside India including deemed assets but excluding exempted assets and deducted by the aggregate value of all debts owed by him on the valuation date which have been incurred in relation to the assets. Similarly in the case of a Hindu Undivided Family which is a resident and ordinary resident or a company which is a resident in India, the net wealth chargeable to wealth tax would include the aggregate value of all assets located inside and outside India including deemed assets but excluding the exempted assets and deducted by the aggregate value of all debts owed by him on the valuation date which have been incurred in relation to the assets.
But in case of an individual Indian citizen whose residential status is either resident but not ordinary resident or non resident, the net wealth taxable under the Wealth Tax Act would only the value of all assets located in India including deemed assets but excluding exempted assets deducted by the aggregate values of all the debts owed by it on the valuation date which have been incurred in relation to the assets. Net of assets/ liabilities located outside India are tax free.
Finally, in the case of a Hindu Undivided Family or a company which are non residents, net wealth chargeable to tax under Wealth Tax Act would include the value of all assets located in India including deemed assets but excluding exempted assets and deducted by the aggregate value of all debts owed by it on the valuation date which have been incurred in relation to the assets. They are not assessed in respect of assets locate outside India.
Here it has to be specifically noted that the debts owed by the assessee on the valuation date is deductible only if such debts had been incurred in relation to those assets which are included in the net wealth of the assessee.
The expression assets have been defined in section 2(ea) of the Wealth Tax Act. Only those assets within the scope of section 2(ea) are chargeable to wealth tax. They are mentioned below:
1. any guest house and any residential house or commercial house including a farm house situated within 25 kilometres from the local limits of a municipality
(Whether known as a municipality, a municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board, but does not include –
a) 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 five lakh rupees.
b) any house for residential purposes or commercial house which forms part of stock in trade.
c) any house occupied by the assessee for the purpose of his business or profession
d) any residential property let out for a period of 300 days in a previous year
e) any property in the nature of commercial establishments.
2. motor cars ,other than those used by the assessee in the business of running them on hire or as stock in trade.
3. jewellery, bullion and furniture, utensils or any other article made wholly or partly of gold, silver or any other precious metals or an alloy containing one or more of such precious metals.
4. yatchs, boats and aircrafts, other than those used by the assessee for commercial purpose
5. cash in hand in excess of rupees fifty thousand.
Deemed assets include those assets that are not owned by the asssessee on the valuation date but he was a prior owner to the asset and continues to derive benefits from it. By virtue of section 4 of the Wealth Tax Act, the following are deemed to be assets of the assessee
a) assets transferred by the assessee to his/her spouse otherwise than for adequate consideration.
b) assets transferred under revocable transfers.
c) assets transferred to son’s wife otherwise than for adequate consideration
d) interest of partner in a partnership firm.
e) Where a gift of money from one person to another person is made by means of entries in the books of accounts maintained by the persons making the gift, the value of such gift shall be liable to be included in computing the net wealth of persons making the gift unless he proves to the assessing officer that money of such gift has actually been delivered.
f) The holder of an impartiable estate shall be deemed to be the individual owner of all the properties comprised in the estate.
g) Property held by a person in part performance of a contract.
Exempted assets are those assets that are not to be included in the net wealth of the assessee and on which he is not required to pay any wealth tax. Exempted assets are enumerated in section 5 of the Wealth Tax Act and they are mentioned below:
- Any property used by an assessee under a trust or other legal obligation or for any public purpose of charitable or religious nature in India is totally exempt from tax. However this rule is subject to certain special provisions. The following business assets held by an assessee under a trust for any public or charitable religious trust are exempt from tax –
a) where the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publications of books or the business is of a kind notified by the central government on this behalf in the official gazette.
b) the business is carried on by an institution wholly for charitable purpose and the work in connection with the business is mainly carried on by the beneficiaries of the institution.
c) the business is carried on by an institution, fund or a trust referred to in clause 23B or 23C of section 10 of the Income Tax Act.
Any other business assets of a public charitable or religious trust are not exempt. Similarly where any property is held under a trust for any public purpose of a charitable or religious nature in India, tax shall be leviable upon and recoverable from the trustee or manager of the trust in respect of the property held by him if the trust forfeits exemption by reason of any of the following factors mainly –
(i) any part of the trust’s property or any income of the trust, including income by way of voluntary contributions, is used or applied directly or indirectly for the purpose of any person referred to in section 13(3) of the Income Tax Act e.g. the settler, the trustee, their relatives etc. ; or
(ii) any funds of the trusts are invested or deposited or any shares in a company are held by the trusr in contravention of the investment pattern for trust funds laid down in the section 11(5) of the Income Tax Act.
- The interest oh the assessee in the coparcenary property of the Hindu Undivided Family of which he is a member.
- Any one building in the occupation of a ruler, being a building which immediately before the commencement of Constitution(26th Amendment) Act 1971 was his official residence by virtue of a declaration by the central government.
- Jewellery in possession of a former ruler of a princely state, not being his personal property which has been recognised as his heirloom by the central government before 1st April 1957 or by the board after that date, is totally exempt from tax subject to the fulfilment of the following conditions-
a) the jewellery shall be permanently kept in India and shall not be removed outside India except for a purpose and period approved by the board.
b) that reasonable step are taken for keeping the jewellery substantially in its original shape.
c) that reasonable facilities shall be allowed to any office of the government, authorised by the board in this behalf to examine the jewellery a and when necessary.
- Exemption is available in the case of an assessee who is a person of Indian origin or a citizen of India who was ordinarily residing in a foreign country and on leaving such country, such person has returned to India with the intention of permanently residing in India. Exemption is available to him for seven successive assessment years for
a) Money brought by him to India
b) Value of assets brought by him to India
c) Money standing to the credit of such person in a Non Resident External account in any bank in India on the date of his return to India.
d) The value of assets acquired by him out of money brought by him to India or out of money in NRE A/c within 1 year prior to the date of his return and at any time thereafter.
Due date of filing Return of Wealth is 30th September. Under Section 17B assessees are liable to pay interest along with the tax amount. Interest is charged at the rate of 1 % per month from the due date till the date of filing.
As mentioned earlier wealth tax is charged at the flat rate of 1% on the net wealth exceeding rupees fifteen lakhs. As per section 44C net wealth is rounded off to the nearest multiple of one hundred and as per section 44D wealth tax is rounded off to the nearest rupee.