India: Wealth Tax In India: An Insight

Wealth Tax in India is a form of Direct Tax and is levied under the provisions of Wealth-Tax Act, 1957 ["W.T. Act" for short]. Wealth Tax is levied on every Individual, Hindu Undivided Family (HUF) and Company on the value of their net wealth which exceeds the sum of INR 30,00,000/- (Rupees Thirty Lakhs). Wealth Tax is levied every year. Some of the important definitions and provisions under W.T. Act are as follows:

DEFINITIONS

Some of the important definitions under W.T Act are as follows:

Net Wealth1 - The amount by which the aggregate value of all the assets, wherever located, belonging to the assessee on the valuation date, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date which have been incurred in relation to the said assets.

Assets2 -

  1. Any building or land appurtenant thereto (hereinafter referred to as "house"), whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house in urban area, but does not include—

    1. a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than ten lakh rupees;
    2. any house for residential or commercial purposes which forms part of stock-in-trade;
    3. any house which the assessee may occupy for the purposes of any business or profession carried on by him;
    4. any residential property that has been let-out for a minimum period of three hundred days in the previous year;
    5. any property in the nature of commercial establishments or complexes;
  2. Motor cars (other than those used by the assessee in the business of running them on hire or as stock-in-trade);
  3. Jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals other than those used by the assessee as stock-in-trade; Provided "jewellery" does not include the Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government;
  4. Yachts, boats and aircrafts (other than those used by the assessee for commercial purposes) ;
  5. Urban land, but not including— ;

    1. land on which construction of a building is not permissible or
    2. the land occupied by any building which has been constructed with the approval of the appropriate authority or
    3. any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him or
    4. any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him.
  6. Cash in hand, in excess of fifty thousand rupees, of individuals and Hindu undivided families and in the case of other persons any amount not recorded in the books of account.

Valuation Date3, in relation to any year means the last day of the previous year.

NET WEALTH TO INCLUDE CERTAIN ASSETS4

The value of following Assets will be added in the Asset Value of the assessee for computing the Net wealth of the Assessee

Section 4(1)(a) of W.T. Act — Analogous to Section 64 of the Income Tax Act, 1961 [hereinafter referred to as "I.T. Act"].

  1. Assets transferred by the assessee to the spouse otherwise than for adequate consideration. Assets transferred in consideration or in connection with agreement to live apart are excluded.
  2. Assets held by minor child other than minor married daughter or child suffering from disability specified u/s. 80U Assets acquired by minor child out of income not clubbed under Proviso to Section 64(1A) to be excluded.
  3. Assets transferred to a person or an AOP for the immediate or deferred benefit of the transferor, his or her spouse otherwise than for adequate consideration.
  4. Assets transferred under revocable transfers.
  5. Assets transferred to son's wife for inadequate consideration.

Section 4(1)(b) — Partner of a firm or a member of an AOP — Value of interest in the assets of the firm or AOP computed in the manner laid down in Schedule III.

Section 4(1A) — Analogous to Section 64(2) of the I.T. Act — Separate assets converted by a member of an HUF into the property of the HUF.

Section 4(5) — Assets transferred under an irrevocable transfer, would be included when power to revoke arises.

Section 4(6) — Holder of an impartible estate

Section 4(7)/(8) — Analogous to Sections 27(iii)/(iiia) and (iiib) of the I.T. Act — Deemed owner of a house

  • Member of a co-operative society, company and AOP.
  • Property in possession of a person as referred to in Sec. 53A of Transfer of Property Act, 1882 under part performance.
  • Lessee other than month-to-month lessee and as referred to in clause (f) of Section 269UA of the I.T. Act.

NET WEALTH AS DEFINED ABOVE EXCLUDES CERTAIN ASSETS5

The value of following Assets is not be taken into Account for computing the Net Wealth of the Assessee:

  1. Any property held by the assessee under trust or other legal obligation for any public purpose of a charitable or religious nature in India;
  2. The interest of the assessee in the coparcenary property of any Hindu Undivided Family of which he is a member ;
  3. Any one building in the occupation of a Ruler, being a building which immediately before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, was his official residence;
  4. Jewellery in the possession of any Ruler, not being his personal property, which has been recognised before the commencement W.T. Act, by the Central Government as his heirloom or, where no such recognition exists, which the Board may, subject to any rules that may be made by the Central Government in this behalf, recognise as his heirloom at the time of his first assessment to wealth-tax under the W.T. Act;
  5. In the case of an assessee, being a person of Indian origin or a citizen of India who was ordinarily residing in a foreign country and who, on leaving such country, has returned to India with the intention of permanently residing therein, moneys and the value of assets brought by him into India and the value of the assets acquired by him out of such moneys within one year immediately preceding the date of his return and at any time thereafter. The exemption would be given for a period of 7 successive years commencing with the assessment year next following the date on which such person returned to India;
  6. one house or part of a house or a plot of land belonging to an individual or a Hindu undivided family, provided that the plot of land should be comprising an area of five hundred square meters or less.

NET WEALTH TO EXCLUDE ASSETS AND DEBTS OUTSIDE INDIA6

In computing the net wealth of an individual who is not a citizen of India or of an individual or a Hindu undivided family not resident in India or resident but not ordinarily resident in India, or of a company not resident in India during the year ending on the valuation date—

  1. the value of the assets and debts located outside India; and
  2. the value of the assets in India represented by any loans or debts owing to the assessee in any case where the interest, if any, payable on such loans or debts is not to be included in the total income of the assessee under section 10 of the I.T. Act; shall not be taken into account.

PERSON WHO ARE EXEMPTED FROM THE APPLICABILITY OF WEALTH TAX7

Wealth Tax is not applicable to

  1. any Section 25 Company under Companies Act, 1956,
  2. any co-operative society;
  3. any social club;
  4. any political party.
  5. a Mutual Fund specified under clause (23D) of section 10 of the I.T. Act.
  6. the Reserve Bank of India incorporated under the Reserve Bank of India Act, 1934 (2 of 1934)

RATE OF WEALTH TAX8

Wealth-tax is charged at the rate of 1 per cent on the taxable wealth.

PENAL PROVISIONS FOR EVADING WEALTH TAX9

In case of willful attempt to evade any tax, penalty or interest chargeable or imposable under the W. T Act and in case of failure to furnish returns of net wealth by the assessee where the amount sought to be evaded exceeds one hundred thousand rupees the assessee may be punished with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and fine.

Footnotes

1. Section 2(m) of W.T. Act

2. Section 2(ea) of W.T. Act

3 Section 2(q) of W.T. Act

4 https://www.wirc-icai.org/wirc_referencer/income%20tax%20&%20wealth%20tax/Wealth%20Tax.htm

5 Section 5 of W.T. Act

6 Section 6 of W.T. Act

7 Section 45 of W.T. Act

8 Section 45 of W.T. Act

9 Section 35A and 35B of W.T. Act

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