WEALTH TAX ACT, 1957 – A BIRD’s EYE VIEW

Posted By on August 12, 2013

Wealth tax is levied on individuals, Hindu Undivided Families (HUFs) and companies who possess net wealth in excess of Rs. 30 Lakh on March 31st of every year. The Wealth tax law has declared a list of assets that will be considered to be part of the taxable wealth of the assessee. Broadly, house property, motor cars, jewellery, cash in hand with subject to some limits are those assets which can be taxed under this act.

The chargeable rate of wealth tax is 1% on amount by which net wealth exceeds Rs.30 lakh.

Further, in following manner the incidence of wealth tax is applicable on assesses:-

Nature of Assessee

Whether to be included

Whether to be deducted

Assets located in India

Assets located outside India

Deductible Debts located in India

Deductible Debts located outside India

In case of an Indian individual and every HUF:-

-    Ordinarily Resident in India

YES

YES

YES

YES

-    Not Ordinarily Resident in India

YES

NO

YES

NO

-    Non-Resident

YES

NO

YES

NO

In case of a company:-

-    Resident

YES

YES

YES

YES

-    Non-Resident

YES

NO

YES

NO

Note :- The residential status of the assessee is to be decided in accordance to section 6 of the Income Tax Act, 1961.

NET WEALTH

Net wealth of an assessee will be equal to the sum of specified assets under the act, after deducting debts which have been incurred in relation to such assets. It is important to note that Wealth-Tax payable will not be available for such deduction from assets.

Net Wealth = Value of Specified Assets – Debt O.S. for acquiring Specified Assets

SPECIFIED ASSETS

Following assets are recognised as Specified Assets under the Wealth Tax Act, 1957:-

a)      Any house (refer note 1 below) situated within 25 km from local limits of any municipality will be included in the net wealth of assessee, other than following exceptions:-

–    Any house allotted to an employee or to a director exclusively for residential purpose whose gross annual salary does not exceed Rs.10 Lac (w.e.f. 1.4.2013), prior to which it was Rs. 5 Lac.

–    Any house occupied for business or profession or forms part of stock-in-trade.

–    If the residential property is let out for 300 days or more in the relevant previous Year.

Note 1 : Definition of ‘House’ includes any residential or commercial house or a farm house also. However, Section 5 of the Act has exempted any one house or a plot of land of Individual/HUF having area not exceeding 500 sq. mtrs from the coverage under wealth tax.

b)      Motor Cars of assessee which are not used in the business of running them or hiring

c)      Jewellery, Bullion or any other article which is made wholly or partly of Gold or any other precious metal or any metal containing two or more such precious metal.(does not include Gold Deposit Bond issued under Gold Deposit Bond Scheme 1999)

d)      Yachts, boats and aircrafts which are not used for commercial purpose.

e)      Urban land (refer note 2 below), situated within 8 km from the local limits of any municipality or cantonment board as specified by Central Government and having a population of not less than Ten Thousands according to the last preceding census.

Note 2 : Meaning of Urban Land as an asset excludes the following:

(i)     Urban land on which construction is not permissible under any law.

(ii)     Unused land held for industrial purposes for a period of two years from the date of acquisition.

(iii)     Land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition.

f)       CASH IN HAND in excess of Rs. 50000/- in case of individuals and HUF and in case of companies, any amount not recorded in books.

DEEMED ASSETS to be included in the net-wealth of the assessee:-

Assets held by

Type of assets

  • Spouse, or
  • Person or Association of person for the benefit Of spouse, or
  • Son’s Wife
Assets, transferred by an assessee, directly or indirectly, otherwise than for adequate consideration to a person referred in first column.
Person or Association of Persons Where the asset has been transferred by an assessee otherwise than an irrevocable transfer.
Minor child, not being a married daughter or physically or mentally handicapped child (refer note 3 below) All assets other than that acquired by him through manual work done by him or an activity involving application of his specialized knowledge and skill.
Partitioned property of HUF, held by spouse Previously converted individual property into HUF property.
Partnership Firm Value of interest of the individual in the assets of the Partnership Firm.
Individual Value of house or part of house allotted/leased to him by the co-operative housing society, company or association after deducting the value of outstanding installments of the amount payable under such scheme.
Any person Assets transferred by an individual under irrevocable transfer. (i.e., a transfer not revocable for a period exceeding six years or during the life time of the transferee)
Gifts made by means of book entries where the money has not been delivered to other person
An impartible asset
Value of the building or part thereof possessed in part performance of a contract under section 53A of the Transfer of Property Act
Value of the building or part thereof in which rights have been acquired by virtue of the transaction referred in clause (f) of section 269UA of thr Income Tax Act 1961.

Note 3: Assets of Minor Child shall be included:

-  If the marriage of parents’ exist – In the net-wealth of parent whose net-wealth excluding assets of minor is greater

-   If the marriage of parents’ does not exist – In the net-wealth of parent who maintain the minor child.

ASSETS EXEMPT FROM COVERAGE UNDER WEALTH TAX:-

Type Of Assets

In the Hands of

Property held under trust for any public purpose of charitable or religious nature in India excluding assets of business carried on by institution, fund or trust not referred in Income Tax Act 1961 Charitable/Religious Institution/Fund/Trust
Interest in coparcenery property of HUF Member of HUF
Any one Building in occupation of a ruler which was his official residence by virtue of declaration by the Central Government Ex-Ruler
Jewellery in possession of ruler recognized as his heirloom subject to certain conditions. Ex-Ruler
Money/assets brought into India and assets acquired out of such money within one year preceding date of return and at anytime thereafter. NRIs returning to India for permanent residence
One house or part of a house or a plot of land not exceeding 500 sq. mtrs. In area Individual/HUF

Filling of the Wealth Tax Return

S.No.

Type of Return

Time period for filling of Return

1.

Voluntary Return -          In case of a company assessee, 31st October of the relevant assessment year

–          In case of non-company assessee, 31st July of the relevant assessment year

2.

Belated or Revised Return Earlier of Two:

–          Any time before completion of assessment, or

–          The expiry of one year from the end of the relevant assessment year.

Interest and Penalty for Default in complying with provisions of the act

S.No.

Type of default

Amount of Interest/Penalty

1.

Delay in furnishing return of net wealth Simple interest at the rate of 1.25% for every month or part of the month from the due date of furnishing return to the date of furnishing return

2

Failure to pay tax or interest payable Penalty of amount not exceeding 100% of tax in arrear

3

Concealment of wealth Minimum penalty:-

–           amount equal to the tax sought to be avoided

Maximum penalty:-

–          Five times of the amount of tax sought to be avoided

DISCLAIMER

The Views expressed on this blog are strictly personal and for knowledge of our clients only. The contents of this blog are solely for informational purpose and it does not constitute any professional advice or recommendation. The laws related to GST and other taxes are under evolution and subject to constant changes and amendments over time. It is suggested to take specific legal advice and necessary due diligence before relying on the contents and information of this Blog. The authors of this blog, does not accept any liabilities for any loss or damage of any kind arising out of information on this blog and for any actions taken in reliance thereon.