Wealth tax is a charge levied on the total or market value of personal assets
Wealth tax is also known as capital tax or equity tax
Wealth tax is imposed on the richer sections
A net wealth tax deducted liabilities from an individual’s wealth, primarily mortgage and other loans
Wealth tax calculation in India
The wealth tax is calculated at 1% on net wealth above Rs 30 lakh
If net wealth for the financial year is Rs 50 lakh
Wealth tax is charged at 1% of (Rs 50 lakh – Rs 30 lakh) ie Rs 20 lakh,
So wealth tax for this case will be Rs 20,000.00
Assets under wealth tax
Personal Motor car, yachts, cash in hand, jewelry, bank deposits, shares, real property, pension plans, money funds, owner-occupied housing, and trusts
You are required to pay wealth tax on a yearly basis on the market value of your property irrespective of the fact that it generates any income for you or not
Asset definition as per wealth tax act
1) any building/land/apartment, whether used for residential or commercial purposes or for maintaining a guest or otherwise
It also includes a farmhouse situated within 25 km from local limits of any municipality or a cantonment board
2) motor cars (other than those used by the taxpayer in the business of running them on hire or held as stock-in-trade
3) Jewelry, 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
4) yachts, boats, and aircraft’s (except for those used by the taxpayer for commercial purposes)
5) urban land (referring to the definition as per law) other than the following
Any unused land held by the taxpayer for industrial purposes for a period of two years from the date of acquisition by him
Any land held by the taxpayer as stock-in-trade for a period of ten years from the date of acquisition by him
Agricultural land as per government record which is used for agriculture purpose
Wealth tax exemptions/limits
1) a particular house or part of the house or a plot (not exceeding 500 sqm) in case of individual or HUF
2) the interest of a person in the coparcenary of any HUF of which he is a member or the house as a place of business or profession
3) any property held by the taxpayer under trust or other legal obligation for any public purpose of a charitable r religious nature in india
4) jewelry in possession of a former ruler of princely state, not being his personal property, which has been recognized by the CG, as a heirloom before 01/04/1957 or by the CBDT after 01/04/1957
5) certain assets belonging to a person of Indian origin or an Indian citizen who was residing abroad and now returning permanently residing in India is exempt subject to certain conditions as per law
6) investment in securities in the forms of shares, bonds, units of mutual funds and units of gold deposit schemes
Penalty for non-payment of wealth tax
1% interest on the tax for every month of delay for evasion can be up to 500% of the tax sought to be evaded
Sub section (3), presently, provides that where the minimum penalty imposable for concealment of wealth as stated above, exceeds Rs 1,000 the wealth tax officer refer the case to the inspecting assistant commissioner who shall thereafter proceeds to impose the penalty
Wealth tax and National Income
Wealth tax, gift tax are not included in the national income as they are paid out of savings and not out of income
Wealth tax for inheritance
In India, leaving tax on inheritance does not exist, in fact, the inheritance or estate tax was abolished with effect from 1985
Wealth tax is not applicable to
1) trusts
2) artificial judicial persons
3) partnership firms
4) association of persons (AOPs)
5) a company registered under section 25 of the companies act 1956 (section 8 of the companies act 2013)
6) Co-operative societies
7) social clubs
8) political parties
9) mutual funds specified under section 10 clause (23D) of the income tax act
Wealth Tax introduced in India
Back in 1957, the government of India decided to introduce the wealth tax act upon the richer strata of society
But since the application of this tax was more expensive than the benefits derived, the act was abolished in 2015 union budget
Abolishing of wealth tax
The wealth tax was abolished in the union budget (2016-2017) presented by union finance minister Arun Jaitly on 28/02/2016
The wealth tax was replaced with an additional surcharge of 2% on the super-rich with a taxable income of over Rs 1 Crore annually
Purpose of wealth tax
To increase the amount of direct taxes being collected from rich people in order to reduce inequality in wealth across India and ensure that these people made a larger contribution towards the revenue of India
Wealth tax & Income tax
Income tax is payable on the income earned in a financial year
Wealth tax is payable on anything which is purchased with money once you have paid your income tax
Reasons of the abolishment of wealth tax in India
1) government wants to reduce the scope of some taxpayers taking undue advantage of the loopholes in the wealth tax act
2) government wants to simplify procedures for easier tracking and enhance transparency with respect to the nature of Indian tax laws
3) the cost of collecting wealth tax was much higher compared to benefits received
4) moreover, wealth tax does not make for a major portion of collection of direct taxes in India
5) by abolishing wealth tax and replacing it with additional surcharge, the government has collected revenue worth Rs 9000 crore since 2015
6) administrative burdon – every taxpayer has to value their assets as per the wealth tax rules to compute their net woth
7) for certain assets, such as jewelry, taxpayers had to obtain a valuation report from a registered valuer which in turn increased the process of tax collection
8) the Indian government wants to bring more persons under its tax net, given that individuals who file income tax returns outnumber those who file wealth tax returns
9) improved reporting – as per the surcharge system of collection, the taxpayers will have to do some additional reporting of information in their income tax returns in terms of listing out their assets and liabilities
10) prevents leakage – details about assets submitted by the taxpayer in the income tax returns will help officials correlate declared wealth with the declared income, hence tax officers are able to ensure that there is no tax leakage
Impacts of Wealth Tax
1) wealth tax has been replaced with a levy of additional surcharge
2) the surcharge would be applicable to the followings
Individuals HUFs Firms Cooperative societies Local authorities
With income exceeding Rs 1 Crore
3) for an individual with an annual income of mire than Rs 1 Crore and Firms with an income exceeding Rs 10 Crore,
The surcharge applicable is 15% for the financial year 2018-19
4) for corporate earning an annual taxable income between Rs 1 Crore to Rs 10 Crore, the surcharge applicable is 7% and 12% for taxable income more than 10 crore
