Wealth Tax Rates in India

Like the income tax, the wealth tax is levied on a yearly basis. This direct tax is imposed on individuals that come within its jurisdiction- there are no special wealth tax benefits for pensioners, senior citizens, or retired professionals.

What is Wealth Tax?

As per the Income Tax Act the term assessment year signifies the 12 month period that starts from the first day of April in a fiscal. The term net wealth implies the wealth that can be subjected to taxation.

It is basically the difference between the total worth of the taxable assets and the aggregate debts that have been incurred on those assets. This calculation does not take into account the exempted assets and is always done on the basis of a valuation date.

Wealth Tax Rates in India

Wealth tax is normally levied on the basis of the net wealth of the assessee, which could be an individual, a company or a Hindu Undivided Family. At present the rate is 1 percent of the amount that exceeds Rs. 30 lakh on the Valuation Date. The calculation is done on the basis of a valuation date, which is normally March 31 of the immediately previous assessment year.

Who has to pay the Wealth Tax?

The levy of wealth tax is done on the basis of the nationality and residential status of an individual. The residential status of the tax payers is determined according to the provisions mentioned in Chapter I Supra of the Income Tax Act.

If the taxpayer is both a citizen and resident of India, a resident HUF or a company that is based in the country, then the following factors will be taken into consideration while computing the tax:

• All property held in India and outside the country
• All debt in India and outside India will be calculated while deciding on net wealth

The following factors will come into play if the taxpayer is (a) an Indian citizen but either a non resident or non regular resident, (b) a non regular resident or non resident HUF, and (c) a non resident Indian company:

• All property in India with the exception of loan and debt interest that has been exempted from income tax as per Section 10 of the Income Tax Act
• All debts and assets that are outside the country and beyond the Wealth Tax Act’s scope
• All debt incurred within India

The above mentioned factors will also be applicable in case of taxpayers who are not Indian citizens but can be classified as any one of the following:

• Resident
• Not ordinarily resident
• Non resident

The credit balance of non resident or external accounts is exempted from wealth taxes if the depositors are found residing outside the country, as stated in Foreign Exchange Regulation Act, 1973.

Wealth Tax Assets

The following are regarded as assets that can be subjected to wealth taxes as per Section 2(ea) of Wealth Tax Act:

• Commercial buildings and the nearby land
• Jewelry, furniture, bullion, utensils, and other articles that are either totally or partly made of gold, platinum, silver or any other metal or an alloy of these metals. Ones owned as stock-in-trade will be exempted from this tax
• Residential buildings and the nearby land
• Yachts, aircraft, and boat
• Guest houses and the nearby land
• Urban land – (a) an area that is located within a local authority’s jurisdiction and has at least 10,000 people as per the last census completed before the valuation date. (b) an area within 8 kms of a local authority like the Central Government
• A farm house located within 25 kms of the local limits of a Cantonment Board and municipality
• Cash in hand assets - (a) For individuals and HUFs any amount over INR 50 thousand, and (b) for others any cash amount that has not been recorded in accounts
• Motor cars – cars operated on hire or on a stock-in-trade basis will be exempted from taxes

The following are not regarded as assets while computing the wealth tax:

• A residential real estate property that has been allocated to a full time employee by either the company or the director or an officer with a gross yearly salary lesser than 5 lakh rupees
• A commercial or residential real estate property that is part of a stock-in-trade process
• Commercial real estate property being used for official or business purposes
• A residential property that has been put on hire for a minimum of 300 days in the immediately earlier year
• A commercial complex or establishment
• A land where construction is illegal
• A land where the building has been set up with approval from proper authorities
• An unused land owned for industrial purposes. However, the land should remain unused for 2 years after acquisition
• A land that has been owned by an assessee for 5 years as a stock-in-trade

According to the section 4(l)(a) of the Wealth Tax Act, 1957 following are regarded as deemed assets:

• Assets transferred between spouses
• Assets transferred as per revocable transfer
• Assets owned by minors. If a specially-abled child owns any asset it will not be grouped with his or her parents’ net income and will be assessed separately
• Assets provided to son’s wife or to another person or group of individuals for the benefit of son’s wife.
• Asset that has been transferred to an individual or a group of people. This transfer must benefit the providers or their spouses in either short or long term

The Section 5 of Wealth Tax states the following as being exempted from taxation:

• Religious or charitable property owned by a trust or another legal entity
• Jewelry owned by erstwhile rulers
• Coparcenary interest in property owned by HUFs
• Residential property owned by former rulers

Wealth Tax Asset Valuation and Return Filing

For valuation of non cash assets the procedures mentioned in Section 7(2) and Schedule III to the Wealth Tax Act are followed. All liable tax payers need to file net wealth returns in Form A.

The dates for filing these returns are normally similar to ones applicable for the income tax returns. If the tax is based on returns, the assessee should pay the taxes prior to filing the same. These returns normally come with proofs of payment.

Last Updated on July 3, 2015

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