Do you know that the vacant sites, the car, the jewellery you own are all subject to Wealth tax?

Wealthy individuals have to pay tax on their net wealth, apart from Income Tax. This tax is less known in the society. In fact, this tax is ‘less harming’ compared to Income Tax. This could be one of the reasons why people have not taken this seriously. I have covered the major aspects of wealth tax applicable for Individuals in India.

Let me start with a standard statement – Net wealth on valuation date is chargeable to wealth-tax (WT) in the immediately following assessment year.

Who is a wealthy person? Anyone who has Net wealth (Assets/properties owned by you MINUS loans/liabilities) of Rs.30 Lakhs and above as on valuation date is a wealthy person.

What Assets mean? Not all assets are considered as wealth for WT purpose.

Excluded assets

• “I own a residential flat/house at Bangalore, maybe worth Rs. 2 crores” (One self-occupied house/flat is not considered as wealth for WT purpose)

• “I own a commercial building which is let out for rent” (any property including residential house which is let-out for rent is not to be considered – residential house let out for a period of more than 300 days in the previous year is not considered as an asset)

• “I own a house/building which is used for my profession or business” (not considered as wealth for WT purpose)

• “I have Rs.1 Crore as Fixed deposit in a bank” (not considered as Asset)

• Vacant site – “I own 50×80 site at Chennai, but I don’t own house/flat” (A vacant site measuring up to 500 sq.metres (5382 sft) is exempt from wealth tax. So, in this case, as it is 4000 sft it is exempt)

• “I have a partnership firm. We have 3 cars in the books of the firm” (Not taxable for wealth tax purpose. Firm, club, society, trust, political party are exempt from wealth tax)

• “I have invested in Mutual Funds, Stocks” (all productive assets such as Mutual Funds, stocks are exempt from wealth tax)

Included Assets

• Vacant site – “I own 60×40 site at Bangalore, apart from my flat. The site may be worth Rs.80 Lakhs” (Yes. One of it i.e., either the flat/house or vacant site is exempt, but not both)

• Motor Cars – “I own 3 cars” – yes, to be considered as Asset for tax purpose, even if it is used for business or profession. Except if these cars are used for renting (hiring) business or held as stock in trade. 

• “I own a farm house situated within 25 kms from the local municipal limits (Yes. It is considered as wealth for tax purpose)

• Cash in hand in excess of Rs.50,000 as considered as Asset (but if it is used in business and accounted in books, then it is not an asset)

• Urban Land – is an asset

• “I own an industrial land of 2 acres, lying vacant for the last 3 years. Bought it for investment purpose” (It is an asset. Any industrial land lying vacant for over 2 years of holding, not used for business is considered as an asset)

•  “I am working as a software engineer in a multinational company. I own a vacant plot, Audi car worth Rs.75 lakhs” (Yes. The personal car of a salaried employee is also considered as wealth for WT purpose. However, if you are owning only one plot (site) and no other residential house/flat it is exempt)

• “I have personal wealth such as gold, jewellery, bullion, furniture, etc”. Yes these things are Asset for WT purpose but not Gold bonds! 

What Liability mean?

• Any loan taken to acquire the above Assets (assets which are chargeable to wealth tax only)

• “I have purchased a car out of working capital loan, can I reduce it from the net wealth (only the loans associated with the purchase of the asset can be reduced. In this case, it is difficult to establish the co-relation, so you can’t avail deduction)

Rate of Tax and filing of return

• Suppose the total Asset is Rs.2 Crore and the relative debt to acquire such asset is Rs.80 Lakhs, the net wealth will be Rs.1.20 Crore.

• One has to pay Rs.90,000 as WT ( 1% of net wealth i.e., Rs.1.20 Crores Less Rs.30 Lakh of basic exemption) as taxes. Please note that there is no education cess or surcharge on this rate)

• The wealth tax paid and WT return to be filed on or before the due dates. The due dates applicable to Income Tax will apply for wealth tax also.             

Penalty – like any other defaults, non – payment of wealth tax attracts penalty, which may go up to 500% (i.e. 5 times) of taxes. 

Location of the Asset/liabilities – In case of Resident taxpayers, the location of the asset/liability is immaterial. Even if it is situated abroad, it is subject to wealth tax in India. However, in case of foreign citizens, NRIs, only assets/liability located in India to be considered.

Clubbing of Assets – Assets transferred to spouse (wife/husband), minor child without adequate consideration is to be added to the taxpayer’s net wealth.

Valuation of Assets – The valuation rules are laid down by the Act. We will cover this aspect in a separate article.

There is no great wealth in this world than Peace of mind. Thank god, peace of mind is not subject to wealth tax! 

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