As stated by famous personalities, ‘wealth’ is nothing but the possession of valuable assets or precious materials etc. in abundance. The accumulation of resources, assets etc. by a person or family or institution in abundance is treated as wealth. Whether its individual, family, community or country, whoever possesses such resources or assets on a larger scale are known as wealthy. Wealth is measured as ‘net assets’ excluding any debts. So, a tax payer should pay tax on the wealth that he/she has accumulated over the years. That means a responsible citizen is supposed to pay income tax on the taxable income along with tax on the wealth, which is called wealth tax. Let’s look at Wealth Tax in India in this guide.
The Parliament of India in 1957 introduced Wealth Tax Act, for levying wealth tax applicable to individuals, Hindu Undivided Family (HUF) and Companies. Wealth tax is imposed on the net wealth owned by a person exceeding Rs 30 lakhs as of 31st March every year. So, the tax that is imposed on the wealth or capital of a person is called wealth tax. There are certain rules as per the Wealth Tax Act 1957 laid down by the government of India. The personal wealth or assets means land, house, precious metals, jewellery, Cash, aircrafts etc.
Finance minister Arun Jaitley during the announcement of Budget 2015, completely abolished the concept of tax on wealth and removed the wealth tax that was introduced in 1957. Instead the government announced that a surcharge is applicable to the high-income class @ 12% for the income above 1 crore or higher in case of individuals and 10 crores applicable to companies. The closure of wealth tax concept is a significant move taken by the government to simplify the existing tax structure.
There is a lot of significance to wealth tax due to the increase in the number of billionaires in the country. Many times, it’s been a politically sensitive subject and the parties demanded for an increase in the wealth tax rates to 3%. There is a direct foreign investment option in certain sectors is available and many booming entrepreneurs are emerging as billionaires in no time.
The current tax structure and income tax forms are accordingly amended in order to get the asset details of the individuals. The details of all the assets that are possessed by them should be declared as part of their income tax return.
With an aim to reduce the financial inequalities in India, the wealth tax is a form of direct tax. Individuals,HUF’s and companies must pay 1% as wealth tax on the net wealth value above Rs 30 lakhs. Wealth Tax Act is applicable all over India including Jammu & Kashmir along with the Union Territories.
Wealth tax is mainly to target the super-rich class, who possess large number of assets either through inheritance or earned on their own.. It is replaced with an additional 2% surcharge which is applicable to those whose taxable income is more than 1 crore per annum for individuals and 10 crores applicable to companies.
All residents of India are subjected to pay wealth tax on the assets they own in the country along with their global assets. Residential status is a vital factor that determines the key parameters to ascertain tax liability. When it comes to NRI’s and Foreigners, they have to pay wealth tax towards the assets they own in India only. NRI’s returning to India can claim wealth tax exemption for any assets brought to India or assets acquired out of such foreign earnings, up to seven years commencing from the year in which the person returns to India subject to few other conditions.
Wealth tax is applicable to those “assets” that are covered in the definition of the term “assets” as per the Wealth-Tax Act.
A More Structured and Simplified Tax Process: As per the Chelliah Committee recommendations, the Wealth Tax Act of 1957 was revised in 1993. According to the Committee, all the wealth or assets that are productive must be eliminated from those Assets category on which wealth tax has to be paid.
Increased Collection Costs & Administrative Burden: There was only a nominal amount that was being collected as wealth tax but there was a lot of compliance burden and the administration burden was also much higher on the Income Tax Department.
Efficient Governance by the Government: All individuals are required to get their assets valued as per the provisions of wealth tax and obtain a receipt if required, from a Registered Valuer. There could be a chance to the individuals to under value the assets when it comes to assets like jewellery, vehicles etc. because of which there is no increase in the wealth tax collection over the past so many years.
Additional Information Declaration: Also, the tax payer must declare their assets under Assets & Liabilities as part of filing the income tax return.
Transparency: The Tax Department can verify the assets declared by the tax payer in the income tax return against the income shown so that there is no option to hide or under value certain assets like jewellery, cash etc.
Due to such loopholes, the wealth tax concept is completed abolished during the budget 2015. This was compensated through the surcharge levied on high income earners.
The wealth tax is calculated at 1% on net wealth above Rs 30 lakh. If a person’s net wealth for that relevant year is Rs 50 lakh, the 1% wealth tax is charged on Rs 20 laks.
(Rs 50 lakhs – Rs 30 lakhs exemption= Rs 30 lakhs)
So, the final amount payable will be Rs. 30,000/- as its 1% on Rs. 30 lakh.
Keeping the serious consequences in view, it is recommended to abide by the wealth tax rules along with their definitions on assets, wealth etc., and file the wealth tax return to disclose the assets details correctly. The government is constantly taking measures and continuing its efforts to track various investments, foreign assets and expenses etc. that will help them in correlating and controlling non-compliance and make it easier for the tax authorities.
So, ensure you have the list of assets that are considered as per Wealth Tax Act 1957 and consider the exemptions available to determine the wealth tax liability to be paid for that respective financial year. Enlist the aid of professional to ensure a correct return is filed as per wealth tax act. Consult the tax experts at H&R Block India for all your tax related queries.