There may be liberty and justice for all, but there are tax breaks only for some. ~ Martin Sullivan
A majority of the tax payers in India are ignorant about the wealth tax, and it’s implications.
Wealth tax is a good potential annual recurring income stream for the government. However, it is perplexing why the tax authorities are lax on this aspect of tax collection. Political compulsions, Pressure from the affluent to look the other way, or probably because they have more pressing revenue sources, whatever the reasons may be, the common man needs to be aware of the implications of wealth tax, as the authorities can come after them at any point in time.
So what is Wealth Tax?
Wealth tax is a direct tax levied on the ownership of certain assets by individuals and Hindu Undivided Families (HUFs) even though these assets may not generate any income. It is an annual tax and is imposed with reference to the previous financial year or the present assessment year. It is governed by the Wealth Tax Act, 1957.
The assets which are taxable under the Wealth Tax Act are residential property other than one house, guesthouse, farmhouse, motor cars, precious metals including those in the form of jewelry, gold, furniture, utensils or other articles, aircrafts, yachts, boats, urban land and cash in hand in excess of Rs 50,000.
Wealth tax is not levied on productive assets, hence investments in shares, debentures, UTI, mutual funds, etc are exempt from it.
The assets chargeable to wealth tax are :-
Guest house, residential house, commercial building
Jewellery, bullion, utensils of gold, silver etc
Yachts, boats and aircrafts
Cash in hand(in excess of 50,000), only for Individual & HUF
The following will not be included in Assets :-
Any of the above if held as Stock in trade.
A house held for business or profession.
Any property in nature of commercial complex.
A house let out for more than 300 days in a year.
Gold deposit bond.
A residential house allotted by a Company to an employee, or an Officer, or a Whole Time Director ( Gross salary i.e. excluding perquisites and before Standard Deduction of such Employee, Officer, Director should be less than Rs. 5,00,000).
The Assets exempt from Wealth tax are :-
Property held under a trust.
Interest of the assessee in the coparcenary property of a HUF of which he is a member.
Residential building of a former ruler.
Assets belonging to Indian repatriates.
One house or a part of house or a plot of land not exceeding 500sq.mts,for individual & HUF assessee.
In addition to these, all assets transferred by individuals to their minor children and to a spouse for inadequate consideration also attract wealth tax.
In India, the extent of taxable wealth for individuals differs with their residential status. For resident Indians, net taxable wealth will include all assets in India and abroad whereas for non-resident Indians, net taxable wealth includes only those assets which are in India.
Wealth tax is paid when an individual’s net taxable wealth minus his/her total outstanding debt on all such assets (that are eligible for wealth tax) is more than Rs 30 lakh, as on valuation date (March 31 of a financial year).
It is levied at 1 per cent of the net taxable wealth exceeding Rs 30 lakh.
Taxpayers can pay wealth tax by using the Challan ITNS 282, before filling for wealth tax returns.
There is heavy penalty for late payment or non-payment of wealth tax.
Late payment of wealth tax attracts a penalty of 1 per cent interest per month for each month of delay. Moreover, in cases of non-payment of wealth tax/tax evasion, the tax officer can start tax recovery proceedings in which a heavy penalty of as much as five times the amount of tax due can be slapped on the defaulter. Plus, in extreme cases the defaulter may also be sentenced to jail. (~source : Rediff Finance)
So , in case you have assets which would attract Wealth Tax, it is better to talk to your CA to get more information on filing wealth tax returns.