ealth Tax in India

India’s tax system involves many different types of taxes and one of them is

wealth tax (a.k.a. net worth tax, capital tax or equity tax). The government
abolished wealth tax as announced in the budget 2015. In its stead, the
government decided to increase the surcharge levied on the ‘super rich’ class
by 2% to 12%. Super rich are persons with incomes of Rs.1 crore or higher and
companies that earn Rs.10 crores or higher. The abolition was a move to do
away with high costs of collection and also to simplify the existing tax structure
thereby discouraging tax evasion.
Wealth tax is a direct tax with the aim to reduce the inequalities of wealth. It is
charged on the net wealth of super rich individuals, companies, and Hindu
Undivided Families (HUFs). It was abolished and replaced with 2% additional
surcharge levy.
Introduced in late 1950s, Wealth tax is a levy of tax on the net wealth (the
aggregate value of assets minus the aggregate value of debts or liabilities as on
the valuation date) of super rich individuals/HUF/companies at the end of a
fiscal year. Wealth tax was essentially aimed at taxing the super-rich taxpayers
who both by inheritance or on their own, accumulated wealth and therefore,
had to make a larger contribution to the exchequer. An individual, a Hindu
Undivided Family or a company had to pay a wealth tax of 1% on earnings of
over Rs.30 lakh p.a.
Wealth Tax Rules
Who does wealth tax apply to or who has to pay wealth tax and how is it
applied?
The residential status of an individual was one of the key parameters to
ascertain wealth tax liability. Resident Indians were liable to pay wealth tax on
their global assets. However, non-resident Indians and foreigners were liable
to pay wealth tax on their assets in India only. If a non-resident Indian returns
to India, his assets would not be exempt from wealth tax. Assets acquired by
NRIs within one year of their return are also exempt.
Assets which were covered under wealth tax:
Wealth tax was payable on assets such as real estate and gold. Assets
such as shares, mutual funds and securities termed as ‘productive
assets’, were exempt from wealth tax.
Yachts, aircraft and boats came under the purview of wealth tax.
While one residential home is exempt, more than one own house would
come under the purview of wealth tax. However, wealth tax is not
 applicable on a property if it is used for business or rented for 300
days in a year.
Tax is levied on the market price of a car, except when used in a car
hiring business.
Gold, platinum and silver ornaments came under the purview of wealth
tax. Also, wealth tax is applicable to cash-in-hand above Rs. 50,000.
If a taxpayer had to pay wealth tax, transferring his or her assets to the
spouse would not result in evasion of levy, since assets even if gifted,
would be considered the property of the taxpayer.
Wealth Tax Exemptions
Assets not covered
Investment securities viz. shares, bonds, units of mutual funds, units of
gold deposit schemes
Houses/plots of area below 500 sq. Mts.
Houses as place of business/profession
Residential properties rented out for 300 days or more in a year
Vehicles for hire
Stock-in-trade business assets
How to calculate wealth tax in India?
Wealth tax was calculated on the market value of all the assets owned,
irrespective of whether they yielded any returns or not. All individuals and
Hindu Undivided Family with net wealth above Rs. 30 lakh were required to
pay wealth tax. Wealth tax was based on the valuation of assets as on March
31 and would, therefore, be applicable on any assets acquired at the end of a
financial year. However, assets sold during the year would not come under the
purview of wealth tax. Significantly, some Double Taxation Avoidance
Agreements (DTAAs) in the country, provided relief to taxpayers from wealth
tax, if they had already paid it in any other country.
Wealth Tax Rates
Wealth tax was calculated at 1% on net wealth above Rs.30 lakhs. E.g. If you
your net wealth for the year was Rs.50 lakhs, wealth tax would be charged at
1% on Rs.20 lakhs i.e (Rs.50 lakhs - Rs.30 lakhs). Amount payable = Rs.20,000.
Wealth Tax Returns - E-Filing VS. Wealth Tax Return Form:
The CBDT had, in 2014, made it mandatory for wealth tax returns to be filed
online only i.e. E-filing of wealth tax returns, effective FY 2014 -2015. The form
would be filled and submitted using a digital signature. This, however, would
not apply to those who are not liable to be audited. Such persons could file
returns on wealth tax through the traditional means i.e. through paperwork.
Why has Wealth Tax been abolished?
Some of the main objectives cited by experts behind the move include the
following:
Focus on more governance and less government: Finance minister,
during his budget speech, cited the lack of ease of doing business as
one of the reasons for abolishing the wealth tax. Also, by abolishing
wealth tax, government has reduced the scope of some taxpayers
taking undue advantage of the loopholes in the wealth tax act.
Simplification of tax procedures: According to experts, Indian tax laws
are, by and large, very complex and therefore, prone to litigations.
Government wants to simplify procedures for easier tracking and
enhance transparency.
Incurs high collection costs but provides low yield: In a country with
increasing number of billionaires, government collected a meagre Rs.
1008 crore as wealth tax last fiscal, exposing how the cost of collecting
the tax is much higher compared to the low yield. Also, wealth tax
does not form a major chunk of collection of direct taxes in India
(Rs.788.67 crore and Rs.844.12 crore were collected as wealth tax in
2011-12 and 2012-13 respectively).
Increase the revenue collection: By abolishing the wealth tax and
replacing it with additional surcharge, government can collect up to
Rs. 9000 crore in a fiscal year, opined the finance minister in his
budget speech.
Additional administrative burden: Taxpayers had to value their assets as
per the Wealth Tax Rules to compute their net wealth. For certain
assets such as jewellery, taxpayers had to obtain a valuation report
from a registered valuer.
Tax compliance and widening the tax base: Government wants to bring
more persons under its tax net given that individuals who file income
tax returns outnumber those who file wealth tax returns.
Additional reporting: Taxpayers will have to do some additional
reporting of information in their income tax returns in terms of listing
out their assets and liabilities.
No leakage: Details about assets submitted by the taxpayer in the
income tax returns will help officials correlate declared wealth with
the declared income. Tax officers can, therefore, ensure that there is
no tax ‘leakage’. Earlier, unproductive assets such as jewelry which
 cannot be readily tracked would allow assessees to skip making such
disclosures in their wealth returns.
Low Awareness: According to rough estimates, many assessees in the
country are only dimly aware of the existence of the wealth tax.
Consequently, more often than not, assessees are served with notices
for failing to pay wealth tax. In 2011-12, the number of wealth tax
assessees in India stood at 1.15 lakhs.
Difference between Income Tax & Wealth Tax?
While income tax is payable on the income earned by individuals regularly,
wealth tax is payable on the assets bought with the income after paying
income tax.
It’s curtains for Wealth Tax!
Wealth tax has been abolished (w.e.f April 1, 2016 for wealth held as on March
31, 2016) by the central government, as announced by the finance minister, in
his budget speech, in March, this year. Super rich taxpayers, therefore, need
not file their wealth returns for the financial year 2015-16.
Impact on Super-Rich Taxpayers
As a result of the proposed abolishment of the wealth tax, taxpayers will re-
examine their portfolios in that most may consider investing in land in urban
areas among other assets which had hitherto come under the purview of
wealth tax. As per the new proposal by the finance minister, if you hold more
than one plot in an urban area, you don’t have to pay wealth tax and should
pay only capital gains tax upon sale. Also, at the time of the sale, you can
reduce your liability by investing in a residential house or bonds, if the
property has been held for 36 months. Taxpayers can also invest in gold under
the Gold Monetisation Scheme.
Surcharge on super-rich’ replaces wealth tax:
Wealth tax will be replaced with a levy of additional 2 % surcharge.  The
surcharge would be applicable to the following:
Individuals
Hindu Undivided Families
Firms
Cooperative societies
Local authorities with income exceeding Rs. 1 crore.
The central government has proposed an increase of surcharge by 2% to 12%
on the super-rich individuals earning an annual income of Rs. 1 crore and
above in addition to firms with an annual income of Rs. 10 crore or more.
Companies with incomes between Rs. 1 crore and Rs. 10 crore would have to
pay a surcharge of 7%. The term super-rich' covers all taxpayers earning more
than the threshold specified by the government.
Super-rich will pay more:
The super-rich will pay more owing to an increase in surcharge by 2%. The
peak tax rate for the super-rich has been raised from 33.99% to 34.61%. The
previous central government had announced a surcharge of 10% in 2013 for
individuals with annual incomes of Rs.1 crore or above (as per rough estimates,
there were around 42,800 persons in the country who fit the income criteria to
pay wealth tax at the time).
IT forms to be amended:
The information pertaining to assets which was required to be furnished in the
wealth tax returns will, henceforth, be included in income tax returns. The
new income tax returns forms will be accordingly tweaked to include details of
assets.
How is surcharge calculated?
To calculate the net taxable income, taxpayers should deduct their
investments and expenditure which qualify for income tax deduction from
their total gross income.
Example:
Akhil Sharma, a 36-year-old businessman, has a gross total income of
Rs.1.1crore. He invests Rs.1.5 lakh in equity-linked savings scheme and public
provident fund, which is tax deductible as per section 80C. Akhil also has a
home loan, for which he pays Rs.2 lakh p.a as interest, which is also eligible for
tax deduction. After deducting Akhil’s investments, his net taxable income
works out to around Rs.115 lakh. Given that Akhil’s net taxable income is over
Rs.1 crore, he has to pay a surcharge (which has currently been increased from
10% to 12%) of around Rs.3.98 lakh.
FAQs on Wealth Tax
1. Can resident taxpayers hold assets within or outside India sans
disclosures as a result of abolition of wealth tax?
No. While there will be no wealth tax levy, taxpayers must make the
required disclosures.
 2. What was the main reason cited by the finance minister to abolish
the wealth tax?
According to the finance minister, wealth tax had high collection costs
but a low yield. However, experts suggest a variety of reasons behind
the move including streamlining of data, reining in black money and
minimising tax evasion among others.
3. Where should taxpayers furnish all the particulars which were
hitherto submitted in wealth tax returns?
Wealth held including all details about assets will be listed in the
income tax returns. Income Tax authorities will administer the
proposed law.
4. How much wealth tax was collected in the last fiscal?
The central government collected a meagre Rs.1,008 crore in the
financial year 2013-14. Wealth tax has not showed any significant
growth over the past few years, according to experts.

the Wealth Tax Act, 1957 was provided by the Parliament of India for collecting
the Wealth Tax from an individual, Hindu Undivided Family or Company.
Wealth Tax is also called the Capital Tax or Equity Tax. It is collected on a
person’s present financial position. The assets which are included in the
collection are cash, bank deposits, shares, fixed assets, personal cars, pensions
and owner-occupied house etc. The valuation date of the wealth tax is 31
March of every year.
GDP(Gross Domestic Product)- It is the most common way to find out the
wealth of the country. In this way, we can determine the wealth of the
individual through their net worth.
What are Assets and deemed assets?
Assets
According to Section 2(a) of the Wealth Tax Act, 1957 there are only six assets.
The assessee must be the owner of the assets on the last day of the financial
year(1st April to 31 March). In other words, it can also be possible that, if the
assessee holds the assets upto 364 days in the financial year and if he holds the
assets on the last day of the financial year, then it can be called as assets. The
type of assets which are explained in Section 5.
 The types of assets are given below:
Urban land
Motor cars
Cash in hand
Yachts, boats and aircrafts
Jewellery
Building
Deemed assets
According to Section 4 of the Wealth Tax Act, it is defined that the assessee of
the assets should not be the owner of such assets on the valuation date(31
March), he should transfer that assets to others.
There are 10 such deemed assets in this Act and these 10 deemed assets are
classified into two categories in the following:
Assessee wise deemed assets
Interest infirm
Transfer to spouse
Conversion by a member of HUF
Assets transferred under a revocable transfer
Gift by book
Impartible Estate
Minor’s wealth
Asset wise deemed assets
Building allotted by Housing;
Rights assume in the building by way of any agreement or settlement;
Possession of building by a contract under Section 53A of Transfer of Property
Act, 1882.
The assets which are exempted from Wealth Tax
Section 5 of The Wealth Tax Act, 1957 contributes some immunity in respect of
some specific assets. The valuation date of the wealth tax is 31 March of every
year. Wealth tax shall not be payable by an assessee in these types of following
assets and these assets shall not be included in the net wealth of the assessee:
Property controlled under any trust or charity
Residential building of the previous ruler
Previous ruler’s jewellery
A house of an individual or HUF
A person in a joint-heirship
Assets belonging to the Indian repatriates
Exemption for debt
Property controlled under any trust or charity
When the trust or the charity works on a business with reference to Section
10 and occupies any property, they will get the immunity under the Wealth Tax
Act, 1957.
Condition is that the business which they work for the trust should be for
charitable and religious purposes.
The work may be notified by the central government or publication of books or
printing of books etc.
Residential building of the previous ruler
If the building was made by the previous ruler and now, it is the residential
house of the present ruler then he will get the immunity for that one house
only.
And if the present ruler made any building then he has to pay the tax for that
second house.
Previous ruler’s jewellery
Jewellery owned by the previous ruler which has been recognized by the
central government can get the immunity and no need of paying the wealth
tax.
A house of an individual or HUF
The exemption is available for one house and for the area not above 500 sq.
meters owned by an individual or HUF.
A person in a joint-heirship
If a person has an interest in HUF and he is also a member then he will get
immunity from The Wealth Tax Act, 1957.
Assets belonging to the Indian repatriates
When an Indian origin person returns to India after many years, the assets
which he brought from outside, to India are exempted from the Wealth Tax
and the exemption is only available for 7 assessment years.
Exemption for debt
A person who has one house and has taken it from a bank loan and the loan
instalments are also pending. He is actually the owning part of the house. Thus,
the person can claim the immunity for debt owned by him for a particular
asset and for the valuation date.

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What are the charges of the Wealth Tax?
Earlier the Wealth Tax was only for the collection of six non-productive assets
instead of taxing all the assets with some exemptions. The concept of charging
Wealth Tax on assets had a change in the year 1992. By these changes, it was
expected that the assessee would be forced to either make the assets
productive or dispose of the assets. The Wealth Tax is calculated on the market
value of the assets.
Some of the basics rules in the following:
Wealth Tax is collected from an individual, HUFs and Companies.
If the net wealth is up to 30 lacs then no tax is payable. Where the net wealth
exceeds 30 lacs, the wealth tax collection will be 1%.
There are no surcharges and an education cess in Wealth Tax.
Any charitable or religious trusts would be exempt from collecting the Wealth
Tax.
For a member of HUF, the ancestor’s property of the HUF is also exempt
under Section 5 of The Wealth Tax Act, 1957.
Under Section 45 of the Wealth Tax Act, 1957, it is mentioned specifically that
the following individuals would get immunity from collecting the tax namely:
Mutual fund
Political party
Social club
A company having a licence under Section 25 of The Companies Act,1956
Reserve Bank of India
Under Section 64 of the Income Tax Act,1961 and as per Section 4 of the
Wealth Tax Act, 1957, the clubbing provisions would not be operated in case of
a minor married daughter.
Wealth tax authorities
The jurisdiction and authorities are defined under Section 8 of the Wealth Tax
Act, 1957 that, Section 16 of the Income Tax Act, 1961 provides the jurisdiction
to the authorities of the Wealth Tax for the exercise of the powers and execute
the functions towards any individual, HUF, or company and the jurisdiction will
be the same as per the Income Tax Act by the directions released
under Section 120 of The Income Tax Act and also by any other provision of
that Act.
For the execution of Section 8 of The Wealth Tax Act, 1957, the authority
having jurisdiction in relation to a person who is not an assessee according to
the Income Tax Act. Income Tax Act will be the Wealth Tax authority having
jurisdiction in regard to the area in which the person lives.
Offence and penalties
Penalty for late payment of Wealth Tax
If a person gets late for the payment of Wealth Tax, then the penalty of 1%
interest for every month of delay will be charged.
Non-payment of Wealth Tax
It will lead to a tax recovery process that the due which was the actual amount
is pending, that will be increased up to five times and in extreme cases, the
defaulter may also be imprisoned.
Case laws under The Wealth Tax Act, 1957
Case law– 1
Apollo Tyres limited Vs. The Assistant Commissioner of Kochi WTA.No.197 of
2009
Here, the High Court of Kerala held that the assessee constantly completed the
construction of the four-storey building with basement and started adopting
within 2 years from the valuation date. The assessee never thought that the
construction of a four-storied building will complete within 2 years, which is
given in the explanation under the Wealth Tax Act. Keeping in mind the
immunity available to productive assets we feel, there is no particular scope
for collecting the tax during the period of construction of the productive asset,
namely, commercial buildings, by utilising the urban land.
In other words, once the non-productive assets like urban land are converted
to a productive asset like a building, which will qualify for the exemption, then
the assessee can start getting immunity even during the period of changing the
non-productive asset to productive asset.
Case law– 2
Hon’ble Punjab and Haryana High Court in the case of Siddhartha Enterprises
322 ITR 82 referred to the judgement of the Supreme Court’s case in the
following
Union of India Vs. Dharmendra Textile Processors & Ors. (2008) 219 CTR (SC)
617 : (2008) 306 ITR 277 (SC)
SC cannot be read as lying down that in every case when a detail of income is
wrong, the penalty must follow. What has been laid down is that the main
difference between criminal liability under Section 276C of the Income Tax Act
and the penalty under Section 271(1)(C) of the Income Tax Act had to be kept
in sense and arrive at the trial of a criminal case but need not be adopted while
going for the case of levying of penalty.
Even so, the concept of penalty has not undergone change by the quality of
the said judgement. The penalty is imposed only when there is some element
of intentional default and not a small mistake. This being the position, the
conclusion having been recorded on facts that the provision of wrong
particulars was simply a mistake and not a deliberate attempt to evade the tax,
the view taken by the Tribunal cannot be held to be difficult.
Difference between Income Tax and Wealth Tax
These are some important difference key points in the following:

Income Tax Wealth Tax

1. The amount of money which is received on a 1. Wealth is defined as the assets

periodic basis like month-wise or any periodic or property which are controlled
system and by any capital investment from where by a person during his course of
the person can get some money. life.

2. Wealth is the market price of

2. It is the flow of money, obtained from any type of
the stock of assets controlled by a
production.
household.

3. Wealth is collected over time,

3. Income is earned or received during a limited
i.e. the creation of wealth takes
time period.
some time.

4. It is charged on the income of an individual from 4. It is levied on an individual or

various sources. household’s wealth.
 E.g- salary, capital gains etc. 
Conclusion
Many people are confused with the Income-tax and the Wealth Tax. Some are
thinking that both the laws are the same and many of them think that they
have to pay one of them by their own choice. Because of this situation in our
country, the development is very slow in progress compared to the other
countries.
Basically, income is something that a person gets it to return for the work he
has done or money invested by him somewhere. On the other hand, the
wealth of a person is something that helps him to survive for some days
without working. And income is the only source that can help to improve the
status of wealth.
Therefore, if a person wants good wealth then he must be sure that he has to
make his income better.
References
http://ymec.in/wp-content/uploads/2014/09/Assets-Chargeable-Under-
Wealth-Tax-Act-1957.pdf
https://lawsofland.blogspot.com/2018/12/assets-deemed-assets-and-
exempted.html
https://keydifferences.com/difference-between-income-and-wealth.html
https://economictimes.indiatimes.com/wealth/tax/13-big-tax-changes-that-
happened-in-2019-and-its-impact-on-your-personal-
finances/articleshow/72883882.cms
https://www.incometaxindia.gov.in/Pages/acts/wealth-tax-act.aspx
https://indiankanoon.org/doc/95472186/

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