Shilpa Patankar & Sonal Singla, Financial Chronicle 14/11/2011
Many taxpayers are aware that apart from paying tax on income, one may also be required to pay a wealth tax on non-productive assets. Wealth tax is a tax that is levied on your wealth annually. The governing act is The Wealth-Tax Act, 1957 (the Act). Simply speaking, in case an individual/Hindu undivided family (HUF) owns certain specified assets and the value of such assets exceeds the specified limit, then he is required to pay wealth tax on the same, as specified under the Act. It may be noted that wealth tax is calculated based not only on the residential status but also the citizenship of the individual.
Rate of wealth tax: Every individual, whose net wealth exceeds Rs 30 lakh on the valuation date of March 31 of the financial year, is required to pay wealth tax at the rate of 1 per cent on such wealth and file a wealth tax return by July 31. Accordingly, the valuation date for the FY2011-12 would be March 31, 2012, and the wealth tax return would have to be filed by July 31, 2012.
It may be noted that surcharge or education cess is not further levied on wealth tax.
Assets considered for wealth tax: Net wealth is computed as a difference between the total assets belonging to an individual after deducting the debts owed by him in connection to the assets under consideration.
As per the Act, the assets that are subject to wealth tax are house property (including farm houses and guest houses subject to conditions), motor cars (whether Indian or imported), jewellery, bullion, utensils or any other article made of precious metal, urban land (agricultural land excluded), yachts, boats and aircraft and cash in hand (in excess of Rs 50,000). However, if the individual holds these assets for trading/commercial purposes, then the same would be excluded from the definition of assets and, hence, would not be liable to wealth tax.
Important exemptions from wealth tax: An individual can claim exemption from wealth tax if he owns one house or a plot of land. Therefore, an individual who owns two houses may want to choose the house with higher value as exempt so as to reduce his wealth tax liability.
Similarly, a residential property that has been let out for a minimum of 300 days in a financial year is also exempt.
The Act also provides an exemption for an individual who is either a person of Indian origin or Indian citizen and has returned to India from a foreign country permanently. This exemption is available for money and value of assets brought by him to India and the value of the assets acquired by him out of such money within one year prior to the date of return and anytime thereafter. This exemption is only for eight years (including the financial year of return back to India).
The method of calculating the value of various assets is prescribed under the Act.
Wealth tax compliances: As in the case with income tax, wealth tax is also required to be paid before filing the wealth tax return form. The individual can deposit the wealth tax by submitting the prescribed wealth tax challan with the authorised banks. The individual is also required to state the challan details in the wealth tax return – Form BA. Moreover, there is no requirement to pay advance tax because wealth tax is computed once annually on March 31 of the financial year. In addition, individuals, whose net wealth does not exceed Rs 30 lakh, are not required to file a return.
Therefore, one needs to be informed about not only the tax provisions on his income but also on his wealth every year to ensure necessary compliance.
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