Changes in direct tax code

shashank (ss) (303 Points)

12 August 2010  

 

Changes in direct tax code

Currently, under the provisions of the Wealth Tax Act, 1957 (WT Act), a tax payer, including an individual, a Hindu undivided family (HUF) or a company is liable to pay wealth tax at the rate of 1% on the amount exceeding a net wealth of Rs 30 lakh.

Few tax payers like a company registered under section 25 of the Companies Act, 1956, social clubs, etc, are not liable to pay wealth tax. This tax is levied on net wealth of the tax payer on the valuation date i.e. the last day of a financial year. Broadly, net wealth refers to the taxable wealth, which means excess of assets over debts.

Wealth tax is levied only on few specified assets as provided under the WT Act and not on all assets. Therefore, it is important to understand which assets fall under the purview of wealth tax. 

First, any building or land appurtenant thereto whether used for residential or commercial purposes or for the purpose of maintaining a guest house and includes a farm house situated within 25 km from local limits of any municipality or cantonment board. There are however certain exceptions to this, wherein a property is not liable to wealth tax. For example, any house whether residential or commercial which forms part of a stock-in-trade, any house occupied by the tax payer for the purpose of any business or profession carried out by him, any residential property which has been let out for a minimum period of 300 days in a financial year, any property in the nature of commercial establishment or complexes, etc.

Second, it includes cars except for those used by a tax payer in the business of running these on hire or as stock-in-trade. 

Third, jewellery, bullion, furniture, utensils, or any other article made wholly or partly of gold, silver, platinum or any other precious metal, except those used as stock-in-trade.

Fourth, it includes yacht, boats and aircraft other than those used by a tax payer for commercial purposes. 

Fifth, urban land as defined under the provisions of the WT Act. Lastly, cash in hand in excess of Rs 50,000 in case of an individual and HUF, and in case of other persons, any amount not recorded in the books of accounts, are also treated as asset.

From the aggregate of all assets, the value of debts owed by a tax payer incurred in relation to the said assets is to be deducted.

Under the DTC Bill, it was proposed that wealth tax will be payable by an individual, HUF and private discretionary trusts.

Further, it was proposed that wealth tax shall be levied on all assets, including the financial assets, except for certain specified assets.

The net wealth of an individual or HUF in excess of Rs 50 crore was to be chargeable to wealth tax at the rate of 0.25%.

A lot of issues were raised such as productive assets should be outside the scope of wealth tax, tax on financial assets could be harsh etc. Accordingly, in the revised discussion paper on DTC, it is proposed that wealth tax will be levied broadly on the same lines as currently provided under the WT Act i.e. on specified unproductive assets. 

It is however important to note that it is proposed that wealth tax will be payable by all tax payers, except for non-profit organisations. Further, the rate of tax and the threshold limits are yet to be specified. 

Therefore, watch out for the finer details in the revised DTC Bill to check whether your assets fall under the wealth tax net or remain outside its purview.

 

Source : https://economictimes.indiatimes.com/quickiearticleshow/6296177.cms