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Wealth tax is a direct annual tax, payable every year like your direct taxes. It is another type of direct tax by which tax is imposed on individuals coming within its purview. Pensioners, retired persons or senior citizens have not been accorded any special benefits under this Act.  Wealth tax needs to be filed by July 31st of the Assessment year.

Wealth Tax

This is charged for every assessment year in respect of net wealth of corresponding valuation date, inter alia, on every individual Hindu Undivided Family (HUF) and company at the rate of 1% of the amount by which net wealth exceeds Rs. 30 lakhs. Net Wealth is the taxable wealth, which in turn is derived from aggregation of value of all assets (excluding exempted assets) belonging to the assessee on the valuation date – which is March 31st of the previous year including assets required to be included in the net wealth, is in excess of the aggregate value of all debts owed by the assessee on the valuation date which have been incurred in relation to the taxable assets.

Scope of Wealth Tax

Incidence of tax in the case of an individual depends upon his residential status and nationality, the residential status is decided as per Income Tax Act.

Following are the intricacies of this act:

Assessment for citizen of India and resident in India, a resident—HUF and company resident in India.

Wealth tax is chargeable on net wealth comprising of:

a. All assets in India and outside India.

b. All debts in India and outside India are deductible in computing the net wealth.

Assessment for citizen of India but non-resident in India or not ordinarily resident in India, HUF, non-resident or not ordinarily resident in India and a company non-resident in India or  an individual who is not a citizen of India whether resident, non-resident or not ordinarily resident in India.

a. All assets in India except loan and debts interest whereon is exempt from income-tax under section 10 of the Income-tax Act are chargeable to tax.

b. All debts in India are deductible in computing the net wealth.

c. All assets and debts outside India are out of the scope of Wealth Tax Act.

Exemptions:

Section 5 of Wealth Tax Act suggests certain exemptions for Wealth Tax, the same is mentioned below –

a. Property under a trust or under some legal obligation of any purpose of a religious or charitable nature in India subject to the fulfillment of certain conditions.

b. Interest of a coparcener in any HUF property.

c. Single residential building of former Ruler.

d. Jewellery of a former ruler (other than personal) or as a heirloom accepted by CBDT or the Central Government before 1st April, 1957.

e. Assets of Indian repatriates for seven years on fulfillment of prescribed conditions.

f. One full or partial house or a plot of land (with effect from 1st April, 1999) belonging to a HUF or individual who is free from Wealth Tax.

Suggested changes in DTC:

The Direct tax code is likely to bring in revolutionary changes in wealth tax calculations and rates –

The threshold limit for wealth tax will be raised to Rs 50 crore from the present Rs 30 lakh and the tax rate was reduced from 1% to 0.25%

On the downside, the scope of Wealth Tax will be extended to financial assets like shares, corporate bonds, fixed deposits, etc as well. Valuation of these assets will be done at cost or at market price, whichever is lower

There are host of nuances within the Income Tax world, every such intricacy proposes a new way to burn a hole in your pocket, but this one is unique for you end-up paying taxes year after year on the same assets that you own!


Published by

Garvit Dave
(Portfolio Analyst & Tax Consultant)
Category Income Tax   Report

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