LATEST: Watch out for changes in direct tax code

Watch out for changes in direct tax code

Vikas Vasal, Executive Director, KPMG

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.

Assets liable to wealth tax

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.

Debts

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.