As the name suggests, wealth tax is levied on wealth. However, wealth tax is not levied on the assets of a person, but only on the idle assets. The assets which are not utilized to generate revenue come under the purview of wealth tax.
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As per the wealth tax Act, 1957, an individual, Hindu Undivided Family or a Company is liable to pay wealth tax at 1% on the earnings over Rs 30 Lakh a year. This tax is generally levied on the net wealth of individuals, companies or a HUF, who has a high yearly turnover.
The main objective of wealth tax is to increase the amount of direct taxes being collected from the rich, in order to reduce inequality in wealth across India. Wealth tax is generally implemented to ensure a greater contribution by high net worth individuals (HNIs), towards the revenue of the country.
Wealth tax rates imposed are 1% of the net worth above Rs 30 Lakhs. Wealth tax is imposed on the net wealth owned by a person on the valuation date.
SEE ALSO: History of Tax
Assets: An asset is a resource of economic value, which an individual or a company owns or controls, with the expectation of a future benefit. Components included are:
Any building or land whether used for residential or commercial purposes but doesn’t include:
Motor vehicles and cars: This should not include vehicles or cars used for commercial purposes.
Jewellery, Bullion, furniture, utensils or articles made fully or partially of gold, silver or precious metals.
Yachts, private jets and other vehicles that are not used for commercial purposes.
Urban land situated in a specified area other than:
Deemed Assets: Deemed assets refer to a type of asset, which belongs to some other person, but for the purpose of calculation of wealth tax, is included as the assets of the assessee.
SEE ALSO: How To Reduce Income Tax In India?
Assets which are not considered as a part of wealth and wealth tax is not computed are known as exempted assets. Exempted assets include:
Wealth tax was calculated on the market value of all the assets owned, irrespective of whether they yield returns or not. All individuals and Hindu Undivided Families with net wealth above Rs 30 Lakhs were required to pay wealth tax.
Wealth tax was based on the valuation of assets as on March 31st and would therefore be applicable on any assets acquired at the end of a financial year. However, assets sold during the year would not come under the purview of the wealth tax.
For example, wealth tax is calculated at 1% on the net wealth above Rs 30 Lakh. If the net wealth of an individual is Rs 60 Lakh for a financial year, then wealth tax would be charged at 1% on Rs 30 Lakh which is (Rs. 60 Lakh – Rs 30 Lakh).
Therefore, wealth tax to be paid is Rs 30,000. (This is 1% of Rs 30 Lakhs).
Wealth tax is better than income tax, as it is calculated on the assets owned by an entity and not on his income. This forces the investment of idle assets. Wealth is generally more stable over time and correlates with financial success and stability.
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