VALUATION OF ASSETS UNDER WEALTH TAX ACT, 1957
Section 7(1): Valuation of assets other than cash shall be determined in the manner laid down in schedule III of the wealth Tax Act.
Before moving ahead first let’s see the assets which fall under the definition of assets as per section 2(ea) and shall be included in the wealth of a person.
ASSETS:
1. House
2. Motor Car
3. Jewellery, Bullion, etc.,
4. Yachts, boats and aircrafts,
5. Urban Land,
6. Cash in Hand,
1. Valuation of Immovable Property (House): (Rule 3 to 8 of Part-B of schedule III)
Steps for valuation of immovable property:
a) Compute Gross Maintainable Rent (GMR)
b) Compute Net Maintainable Rent (NMR)
c) Capitalization of NMR
d) Adjustment in Capitalization value for:-
(i) Unbuilt Area
(ii) Unearned increase in the value of land (applicable for leasehold land only)
Step (a): Computation Gross Maintainable Rent (GMR) [Rule 5]
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Property is let out
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Property not let out
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GMR shall be:
- Annual Rent (Calculated Below) or
- Annual value assessed by the local authority
Whichever is higher
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GMR shall be;
- Annual value as assessed by the local authority or
- If not assessed by the local authority then annual rent which the owner can reasonably expected to receive had such property been let.
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Annual Rent:
i) Where the property is let out throughout the year:
Annual Rent shall be equal to;
Actual rent received or receivable
Add:
●Amount of taxes borne by the tenant
●1/9 of actual rent, if repairs borne by the tenant
●15% p.a of any deposit accepted by the owner as reduced by the amount of actual interest paid but shall not include rental advance for 3 months or less
●Amount of premium as divided by the no. of years of the period of lease
●Value of any benefit in consideration of leasing of the property
ii) Where the property is let only for part of the year then annual rent shall be equal to:
Actual rent received or receivable multiplied by 12 and divided by the number of the months for which property been let out and it shall be increased by;
●Amount of taxes borne by the tenant (in proportionate for the part of the year for which property is let out)
●1/9 of actual rent, if repairs borne by the tenant
●15% p.a of any deposit accepted by the owner as reduced by the amount of actual interest paid but shall not include rental advance for 3 months or less
●Amount of premium as divided by the no. of years of the period of lease (in proportionate for the part of the year for which property is let out)
●Value of any benefit in consideration of leasing of the property (in proportionate for the part of the year for which property is let out)
Step (b): Computation of Net Maintainable Rent (NMR) [Rule 4]
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Gross Maintainable Rent (GMR)
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xxx
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Less: -Amount of tax levied by local authority
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xxx
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Less: -15% of GMR
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xxx
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NMR
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xxx
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Step (c): Capitalization Value of NMR [Rule 3]
(A) If property was acquired or constructed before 01.04.1974
- If property is constructed on freehold land NMR * 12.5
- If property is constructed on lease hold land then
●Where unexpired period of lease is 50 years or more then the value NMR * 10
●Where unexpired period of lease is less than 50 years but more than NMR * 8
15 years then the value
●Where unexpired period of lease is does not exceed 15 years and the lease deed does not give an option for renewal then value shall be determined in the manner laid down under rule 20 instead of rule 3
(B) If the property was acquired or construction is completed after 31.03.1974
- Capitalized value shall be higher of the two;
●Value calculated in (A) above or
●cost of construction + cost of improvement if any
Step (d): Adjustment in Capitalization value [Rule 6]
(A) Value of Unbuilt Area: The following shall be added in the capitalized value for the difference between the unbuilt area and specified area.
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If the unbuilt area exceed the % age of addition
specified area
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% age of addition
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Upto 5% of aggregate area
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NIL
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Above 5% but upto 10% of aggregate area
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20% of the capitalized value
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Above 10% but upto 15% of aggregate area
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30% of the capitalized value
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Above 15% but upto 20% of aggregate area
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40% of the capitalized value
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Above 20%
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Value shall be determined
under rule 20.
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(B) Unearned increase in the value of land (applicable only for property constructed on leasehold land) [Rule 7]:
Unearnedincrease means the difference between the market value of landon each valuation date and the amount of premium paid or payableto the Government or local authority.
Deduct unearned increase in the value of land from the amount arrived after adding in the capitalized value the amount for unbuilt area computed as below;
●Specified part of the unearned increase, if any payable to the Government or
●50% of the value as arrived after adding in the capitalized value the amount for unbuilt area whichever is less.
“Aggregate area” means the total area of the plot.
“Specified Area” maximum space which can be kept as unbuilt.
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Location
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Maximum area which can be kept unbuilt
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where the property is situate at Bombay, Calcutta, Delhi or Madras
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60% of the aggregate area
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where the property is situate at Agra, Ahmadabad, Allahabad, Amritsar, Bangalore, Bhopal, Cochin, Hyderabad, Indore, Jabalpur, Jamshedpur, Kanpur, Lucknow, Ludhiana, Madurai, Nagpur Patna, Pune, Salem, Sholapur, Srinagar Surat, Tiruchirapalli, Trivandrum, Vadodara (Baroda) or Varanasi (Benaras),
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65% of the aggregate area
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where the property is situate at any other place
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70% of the aggregate area
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“Unbuilt Area” means that part of the area on which no building has been erected.
2. Valuation of self occupied residential house [Section 7(2)]
The value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of 12 months immediately preceding the valuation date, may, at the option of the assessee (whichever is beneficial to the assessee i.e. 1 or 2 as below mentioned), be taken to be;
1.
●the value determined in the manner laid down in Schedule III as on the valuation date next following the date on which he became the owner of the house or
●the value determined in the manner laid down in Schedule III on the valuation date relevant to the assessment year commencing on the 1st day of April, 1971, whichever valuation date is later. OR
2.
●The value determined in the manner laid down in Schedule III as on the valuation date relevant to the assessment year.
Note: Cases where valuation of immovable property not to be done as per Rule 3 to rule 7 but shall be determined in the manner laid down in rule 20 [Rule 8]
(a) Where, having regard to the facts and circumstances of the case, the Assessing Officer, with the previous approval of the Deputy Commissioner, is of opinion that it is not practicable to apply the provisions of the said rule to such a case; or
(b) Where the difference between the unbuilt area and the specified area exceeds 20% of the aggregate area; or
(c) Where the property is constructed on leasehold land and the lease expires within a period not exceeding 15 years from the relevant valuation date and the deed of lease does not give an option to the lessee for the renewal of the lease.
3. Valuation of Assets of Business [Rule 14 of Part D of Schedule III]
Where the assessee is carrying on a business for which accounts are maintained by him regularly, then the value of the assets shall be determined as follows:
(a) Where the asset are disclosed in the balance-sheet then value shall be taken to be,
(i) Depreciable assets = Written-Down Value;
(ii) Non-Depreciation assets = Book Value;
(iii) In the case of closing stock its value adopted for the purposes of assessment under the Income-tax Act for the previous year relevant to the corresponding assessment year.
Note: Where the value of any of the assets referred to in clause
(a), deter-mined in accordance;
●with the provisions of Schedule III or
●with rule 20,
and this value exceeds the value arrived at in accordance with clause (a) by more than 20 per cent, then the higher value shall be
taken to be the value of that asset.
(b) Where the asset not disclosed in the balance-sheet then value shall be determined in accordance with the provisions of Schedule III or as per rule 20.
4. Valuation of interest in Firm or Association of Persons [Rule 15 and 16]
The value of the interest of a person in a firm of which he is a partner or in an association of persons of which he is a member shall be determined in the manner provided in rule 16.
Computation of net wealth of the firm or association and its allocation amongst the partners or members.
Step 1: The net wealth of the firm or association of persons on the valuation date shall first be determined as if it were the assessee.
Step 2: That portion of the net wealth of the firm or association as is equal to the amount of its capital shall be allocated among the partners or members in the proportion in which capital has been contributed by them.
Step 3: The residue of the net wealth of the firm or association shall be allocated amongst the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association or, in the absence of such agreement, in the proportion in which the partners or members are entitled to share the profits.
Step 4: The sum total of amounts so allocated to a partner or member under step (2) and step (3) shall be treated as the value of the interest of that partner or member in the firm or association.
While valuing the assets of the firm or AOP no exemption shall be allowed to under section 5. However, the exemption will be allowed to the partner/member for the proportionate share in the said asset which has been included in the net wealth of the firm/AOP.
5. Valuation of the life Interest:
The value of the life interest of an assessee shall be arrived as under:
Life Interest = Average Annual Income × [(1/p+d) -1]
P = Annual premium for the whole life insurance without profits on the life of the life tenant for unit sum assured.
D = i/1+i
I = rate of interest which shall be 6.5%.
“Life tenant” means a person for the duration of whose life the life interest is to subsist.
“Average annual income” means the average of the gross income derived by the assessee from the life interest during the three years ending on the valuation date as reduced by the average of the expenses incurred on the collection of such income for the same period which shall not exceed 5% of the average of the gross annual income.
In the case of CIT vs. Prince Muffakham Jah Bahadur Chamlijan (2001) 247 ITR 351, Supreme Court held that where the assessee is entitled under the terms of a trust created by late Nizam to live in a house during his life time without being required to pay any rent and he did not include the value of life interest so created in his favour in his wealth tax return for the reason that he has not any alienable interest in the house, but that interest shall be called assets for the purpose of the Wealth Tax Act.
6. Valuation of Jwellery [Rule 18 and 19]:
The value of the jewellery shall be fair market value in the openmarket on the valuation date.
●A statement in the prescribed form shall be furnished by the assessee along with return of income where the value of the jewellery on the valuation date does not exceed Rs.5 lakhs.
●A report of a registered valuer in the prescribed form shall be furnished by the assessee along with return of wealth tax
where the value of the jewellery on the valuation date exceeds Rs.5 lakhs.
7. Valuation of assets (Residuary Rule) [Rule 20]
The value of any asset, other than cash, being an asset which is not covered by rules 3 to 19, shall be fair market value in the open market on the valuation date.
Where the value of any asset cannot be estimated under this rule because it is not saleable in the open market, the value shall be determined in accordance with such guidelines or principles as may be specified by the Board from time to time by general or special order.
Source:https://www.icsi.edu/WebModules/Publications/SCS/SCSNov2009.pdf
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