Are you aware….??? Apart from your income tax, you may also be required to file some other taxes. Paying income tax has become very common to all of us and we do it regularly. But how many of you are aware of wealth Tax…??? In our last article we have explained the method of income tax calculation with facts and figures. Click here to read article on How do I File Income Tax Returns
Wealth Tax Act is an important type of direct tax; it is levied on the benefits derived from property ownership. It is introduced in 1st April 1957 for the first time in India. The tax is to be paid year after year on your wealth (property) on its market value, no matter whether the property yields any income or not. Wealth refers to the value of prescribed assets of an individual as reduced by debts owed in respect of assets.
Wealth = Prescribed assets - debts owed in respect of assets
For example, if the asset is valued at Rs 50 lakh and the outstanding loan against the asset is Rs 15 lakh, the amount that would be considered as wealth would be Rs 35 lakh.
Every individual, who has wealth exceeding Rs 30 lakh, is required to pay wealth tax as well as file a return of wealth tax with the revenue authorities by July 31 every year, immediately following the end of the previous year (the previous year runs from April 1 to March 31). The Current wealth tax rate is 1%.
Wealth tax rate = 1%.
No surcharge is levied on wealth tax.
Who Pays Wealth Tax
The person paying the Wealth Tax under the clauses of the Wealth - Tax Act, 1957 is called as Assessee. Following are the categories an assessee can belong to.
- A company
- A Hindu Undivided Family
- An Association of Persons or a Body of Individuals
- Non-corporative taxpayers
- Persons belonging in the 1-by-6 categories
- Legal representative, executor or administrator of a dead person
- An agent of a non-resident
Wealth tax is levied on:
While the definition of assets covered under wealth tax is extremely wide, fortunately a description has been provided for assets that fall within the purview of wealth-tax. Broadly, the following assets are considered as part of the taxable wealth of an individual:
- A house, with the first one being exempt
- Vacant plots of land (other than agricultural land)
- Silver, gold, precious stones, jewellery, etc
- Motor car (other than for business of hire) and
- Cash in excess of Rs 50,000.
- Yachts, boats and aircraft
An important point to note is that the value for the purpose of wealth-tax would be the value of the assets as on the last day of the respective previous year (i.e., March 31).
Wealth tax Exemptions
Wealth tax is not levied on all your productive assets, following assets are exempted from wealth Tax.
- Shares of companies
- Bank and company deposits
- Mutual fund units
- National savings certificates, etc.
* You are permitted to deduct any liability or a loan on the asset from Wealth Tax
There are prescribed guidelines that need to be followed for valuation of the assets. So let us consider two examples for a better understanding.
There are two people named Gautham and Bharath, their assets (wealth) are given below. Let us see implication of wealth tax on their wealth.
Assets of Gautham
Gautham owns the following assets as on March 31, 2010 (assessment year 2010-11):
- One residential house valued at Rs 40 lakh
- Second house valued at Rs 30 lakh
- One motor car valued at Rs 10 lakh
- A bank balance of Rs 1.5 lakh
- Shares valued at Rs 28.5 lakh
- Gold jewellery valued at Rs 10 lakh.
- Cash in hand 1.5 lakh
Would this mean that Gautham has wealth of Rs 1,21,00,000 and he has to pay a wealth-tax of Rs 1,21,000...? (i.e. 1% of 1,21,00,000) it should be noted that only wealth exceeding Rs 30 lakh is taxable.
Thankfully the answer is No!
Total Assets of Gautham = 1,21,00,000
Chargeable wealth = 51,00,000 (Second house, Motor car, Gold jewellery, Cash in hand exceeding Rs. 50,000)
Wealth Tax Payable = 51,000 (1% of 51,00,000)
(Hence Gautham’s Chargeable wealth exceeds Rs.30 lakh he should pay wealth Tax
Assets of Bharath
- One residential house valued at Rs 40 lakh
- One motor car valued at Rs 8 lakh
- A bank balance of Rs 3 lakh
- Shares valued at Rs 30 lakh
- Gold jewellery valued at Rs 15 lakh.
- Cash in hand 2.5 lakh
Total Assets of Bharath = 98,00,000
Chargeable wealth = 2500000 (Motor car, Gold jewellery, Cash in hand exceeding Rs. 50,000)
Wealth Tax Payable = Nil
(Hence Bharath’s Chargeable wealth is below Rs.30 lakh he doesn’t have to pay wealth Tax)
In the above example, shares and the bank balance are not covered as taxable assets. In addition to this, even the covered assets enjoy certain exemptions. Typically, the wealth tax is only applicable on non-productive assets. One must be careful in examining the exemptions that are available in respect of each asset. Your own house, in which you reside, is not an asset subject to wealth tax, nor is a plot of land owned by you provided that it does not exceed 500 sq meters. A house held as stock in trade or used for own business or profession is also exempt, as are commercial complexes. If a residential property has been let out for 300 days or more in the previous year, the same is also exempt from wealth-tax.
While calculating Wealth tax you have to include the value of chargeable assets owned by your spouse and minor children. The value of chargeable assets owned by your spouse is included only if they are gifted by you. Irrespective of who gifted the chargeable asset to your minor child, the value of such assets will be included in your chargeable wealth. But in case if the chargeable wealth of your spouse’s is higher than yours, the minor child’s chargeable wealth has to be included in your spouse’s wealth and she is subject to pay the wealth tax on those assets as well.