Wealth Tax

Updated: 30-12-2022 10:56:44 AM

What is Wealth Tax?

Wealth Tax is a type of direct tax applied to the personal assets of an individual as per the Wealth Tax Act, 1957. The intention of imposing the wealth tax is to bring parity among rich and less affluent taxpayers. Currently there is no wealth tax in India after it was abolished in the Union Budget 2015 which came into effect in FY 2015-16. Under the current direct tax structure instead of wealth tax, the tax authorities apply a surcharge on those with higher income and this surcharge was increased in the Union Budget 2019. As of AY 2019-20, 10% surcharge on Income Tax is applicable to individuals with annual income exceeding Rs. 50 lakh, while this rate is 15% if total income exceeds Rs. 1 crore. 

Who Needs to Pay Wealth Tax in India?

While wealth tax is currently abolished, when it was in effect, the tax was applicable to individuals, Hindu Undivided Families (HUFs), companies, etc. are liable to pay wealth tax. The key factor for wealth tax applicability is the residential status. One more thing, resident Indians are subject to this tax on their global assets. However, Non-Resident Indians (NRIs) who fall under the sphere of wealth tax for their assets held within India are also liable to pay wealth tax. 

When is Wealth Tax Applicable? 

The key criterion for applicability wealth tax is the market value of the net assets of the tax assessee. If an individual, HUF or organization’s net wealth is more than Rs. 30 lakh, wealth tax at the rate of 1% will be levied on the date of valuation on the amount which is in excess of Rs. 30 lakh (as per amendment to the Wealth Tax Act, 1957 introduced in April 2010). Anyone with net wealth in excess of this threshold limit has to file return of net wealth pay wealth tax accordingly. Prior to its abolition in FY 2015-16, the due date of wealth tax returns was the same as that of income tax returns.

What types of wealth are subject to Wealth Tax? 

The Wealth Tax Act, 1957 defines a wide range of assets as well as deemed assets that act components of wealth. Some of the key assets as well as deemed assets that are used to compute wealth of the tax assessee and subsequently calculate applicable wealth tax are listed below. 

Assets that Contribute to Wealth under Wealth Tax Act, 1957 

Assets are resources which are held by the tax assessee and provide various economic benefits. Some of the key assets have to be considered when calculating wealth tax is as follows: 

• Any land or building whether used for residential purpose or any other purpose, but does not include the following:
  • House or property allotted by employer to a full-time employee/officer/director to be used only for residential purpose were the gross annual income (salary) of the assessee is below Rs. 10 Lakh
  • House whether commercial or residential which forms as a part of stock in trade
  • House/property occupied by the tax assessee for professional or business purposes
  • Residential land let out for at least 300 days in the last year
  • Any property such as commercial establishment/complex

1. Motor vehicles except those held as a stock in trade or available for hire by others 
2. Bullion, jewellery, utensils, furniture or any other articles made partly or fully of platinum, gold, silver or any other precious metals
3. Boats, aircrafts, yachts, etc. vehicles other than ones used for commercial purposes
4. Urban property or land located in a particular area other than:

• Those listed as agricultural land or property and used for similar purposes
• Those in which the building construction is not allowed
• Land occupied by the building which was constructed with the approval of concerned authorities
• Land which is not used but held by the assessee for industrial purpose for 2 years from the date of acquisition
• Land or property held by an individual as stock for more than 10 years from the date of acquisition

1. Cash in hand amount greater than Rs. 50,000

What are Deemed Assets under Wealth Tax Act, 1957? 

Deemed assets are the assets which do not legally belong to the assessee but are still considered as part of the tax assessee’s wealth when calculating their net wealth tax liability. Common examples of deemed assets include:

• Any asset directly or indirectly transferred to the spouse other than in cases where such transfer is made with the agreement to live apart
• Any asset transferred by the assessee to any person or association of persons for the deferred or immediate benefits of assessee and their spouse except in cases where adequate consideration has been obtained for the transfer
• Any asset transferred to the son’s wife except in cases where adequate consideration has been received
• Any asset transferred to any person or association of persons for the deferred or immediate benefits of the son’s wife unless adequate consideration was received 
• Any asset held by a minor child apart unless in case of a minor child with disability
• Assessee’s interest in the asset of an association of people or firm where they are partner or member
• Self-acquired property or land that is converted as the family property or transferred with inadequate or inappropriate consideration
• Any asset transferred under the revocable transfer
• Any gift or money made in books those are maintained by assessee by way of mere books entities
• Impartible assets
• Any building which is allotted to the assessee under the homebuilding scheme
• Any building in which an individual is permitted to retain or take possession in full or in part through a contract
• Any building for which the assessee has acquired the rights

What are Exempt Assets under Wealth Tax Act, 1957? 

Some assets are not included for the calculation of wealth tax. Examples of these are:

• Any property or land held under a Trust or for the purpose of religious or charitable purposes.
• The assessee’s interest in the coparcenary property of the Hindu Undivided Family (HUF) to which the assessee belongs.
• Jewellery in possession of the ruler not being their personal property (provided these have been recognised by the Government of India and subject to key terms and conditions).
• Asset or money brought by an Indian citizen or a person of Indian origin from overseas (subject to key terms and conditions specified by the Wealth Tax Act, 1957).
• A part of the house or a house or a land plot owned by a HUF or individual not measuring more than 500 sq. meter in area.