Most people only focus on their personal tax planning and working towards saving as much of income tax. They invest funds in 80C eligible instruments, invest in tax free bonds, carefully managing their capital gains etc. But if your net wealth exceeds Rs. 30 lakhs then you are liable to pay WEALTH TAX.
Wealth tax, the levy on wealth of an individual, Hindu Undivided Family (HUF) or company is in possession of wealth as defined, on the corresponding Valuation Date.
Income tax is payable on the income that you earn, whereas wealth tax is payable on your assets (net wealth), the same assets you buy with your income after shelling out income tax.
The valuation date play very important role in the calculation of Wealth Tax. The Net Wealth that an assessee possesses on the valuation date decides the amount of wealth tax, the residential status of the assessee, value of an asset, and exact amount of wealth at the end of the date. The valuation date is considered the day of 31 March immediately preceding the Assessment Year. E.g., When the Assessment Year is 1 April 2015 to 31 March 2016, the valuation date will be 31 March 2015.
You need to pay wealth tax if the value of personal assets you own exceeds Rs. 30 lakh as on valuation date.
Wealth Tax is not applicable to below mentioned class of assessee
- Artificial Judicial Persons
- Partnership firms
- Association of persons (AOPs)
- A company registered under Section 25 of the Company Act, 1956
- Co-operative Societies
- Social clubs
- Political parties
- Mutual funds specified under Section 10 Clause (23D) of the Income Tax Act
What Constitute Wealth?
For the purpose of wealth tax only specified assets are taken into consideration.
Wealth tax is payable on assets such as real estate and bullion owned by the investor as well as on deemed assets such as those owned by a spouse. Assets such as shares, securities, mutual funds and fixed deposits, which are generally characterized as ‘productive assets’, are exempt from wealth tax. Though there is a long list of items such as yachts, boats, aircraft, among others, that are subject to wealth tax, the assets commonly owned are real estate, jewellery and cars.
Real Estate: One residential home is exempt from wealth tax, while ownership of more than one house will attract wealth tax liability. But if a property is used to conduct business or if it forms a part of stock-in-trade or has been rented out for at least 300 days in a year, wealth tax is not applicable on such property.
Vehicles: Tax is levied on the market price of the car, except where it is used in a car hiring business.
Jewellery: Ornaments made of gold, silver, platinum, bullion or any other precious metal and precious or semi-precious stones are subject to tax. This includes precious gems sewn into clothes or set into furniture. Further, cash-in-hand in excess of Rs. 50,000 is also subject to wealth tax.
More important, if you are liable to wealth tax, transferring the assets to your spouse will not make much of difference. Assets gifted to a spouse, a minor child or a son’s wife will be, notwithstanding the gift, and the same is considered as deemed to belong to the taxpayer himself or herself, hence treated as assets for wealth tax.
Checks and balances
Currently, as it is mandatory to quote PAN (permanent account number) for all financial and property transactions, it is easy to link all Indian transactions of an individual.
The income tax provisions require residents and those ‘ordinarily resident’ to disclose foreign assets (that is, immovable property, other assets, bank accounts and financial interests) in their tax return.
As a matter of taxability all assessee who has status as Resident as on the valuation date needs to pay wealth tax on his/her global wealth. Whereas all Non-Resident Indians (NRI) and foreigners are liable to pay tax only on their assets located in India.
How wealth tax computed?
Wealth tax is computed on the fair market value of all the assets you own. You need to pay wealth tax on the assets whether or not they yield any returns. As per the Indian tax laws say that every individual and Hindu Undivided Family whose net wealth (assets less liabilities incurred to acquire the assets) exceeds Rs. 30 lakh is required to pay wealth tax.
Net wealth is the value of all assets (that are chargeable to wealth tax) held by an individual on the valuation date in excess of the value of all debts incurred in relation to these assets.
The wealth tax, based on the value of the assets on the valuation date i.e. March 31, is levied at the rate of 1% of the amount in excess of Rs. 30 lakh. Therefore, wealth tax will be applicable on an asset even if purchased at the end of the year. Assets sold during the year escape the levy.
Some of India’s Double Taxation Avoidance Agreements (DTAA’s) provide relief from double taxation for wealth tax as well. So, if you have paid wealth tax in any other country, you can expect some relief.
Wealth Tax Applicable to?
Residential status play very important and key role to deciding wealth tax liability. The thumb rule is that Resident Indians are subject to wealth tax on their global assets, while non-resident Indians and foreigners are liable to pay tax only on their assets located in India.
NRIs come under the ambit of wealth tax on their Indian Assets. But if a non-resident returns to India to reside here permanently, the assets brought in by him or her from the amount of foreign income deported in India are not liable to wealth tax.
Assets acquired by an NRI from the money brought in within one year of his or her return are also exempt. This exemption holds good for a period of seven years after the return to India, as per Wealth Tax Act.
Wealth Tax Return
CBDT has made mandatory filing of Wealth Tax Return only by electronic means for certain persons including Company and an assessee being individual or HUF who is liable to audit u/s 44AB as per notification no. 32/2014 dated 23rd June 2014. Form BB has been notified by CBDT as Wealth Tax Return from AY 2014-15 prior to that Form BA was there. Below are some of the important facts to note;
- Individual/HUF to whom provisions of section 44AB is not applicable for AY 2014-15 may file wealth tax return on paper in Form BA.
- Exemption to Individual / HUF from e-filing of form BB is granted only for AY 2014-15. So from AY 2015-16 all person’s are required to e-file wealth tax return with digital signature in Form BB.
- Form BB shall not be accompanied by any document i.e.- statement of computation of tax payable, valuation report of registered valuer, proof of tax or interest deposit.
- Where the assessee had defaulted in timely furnishing of his return of wealth, then penal interest @ 1% for every month or part of a month of delay is chargeable for Non/Late filing of return.
- The due dates for filing of Wealth Tax return are the same as the due dates for filing of Income Tax return (i.e. if the assessee is liable to audit, the due date will be 30th September and in other cases the due date will be 31st July.