Wealth tax short and simple

CHARGEABILITY (SECTION 3)

Wealth tax is charged for every assessment year in respect of net wealth of the corresponding valuation date of every individual, HUF and company, at the rate of 1% on the amount by which the net wealth exceeds Rs. 30,00,000/- (from A Y 2010-11).

INAPPLICABILITY (SECTION 45)

Wealth tax is not applicable in respect of the following:—

1. Section 25 company
2. Co-operative society
3. Social club
4. Political party
5. Mutual Fund specified u/s. 10(23D) of the I.T. Act.

DEFINITIONS (SECTION 2)

1. Assets — Section 2(ea) means —

1. House — Any building or land appurtenant thereto, whether used for residential or commercial purposes or for the purpose of maintaining a guest house or a farm house in an urban area.

Exceptions — Houses which are

1. Meant exclusively for residential purposes and which is allotted by a company to a whole time employee (including officer or director in whole time employment), having gross annual salary of less than Rs. 10 lakhs.
2. Stock-in-trade.
3. Occupied for business or profession of the assessee.
4. Residential property and which is let out for a minimum period of 300 days in the previous year.
5. Commercial establishments or complexes.

1. Motor cars — Except those used in the hiring business or as stock-in-trade.
2. Jewellery — Except that which is used as stock-in-trade.
3. Yachts, boats and aircrafts — other than those used for commercial purposes.
4. Urban land — Any land situated in urban area.

Exceptions —

1. Land on which construction of a building is not permissible under any law.
2. Land occupied by any building which has been constructed with the approval of the appropriate authority.
3. Unused land held for industrial purposes up to 2 years.
4. Land held as stock-in-trade up to 10 years.

1. Cash in hand — For individuals and HUFs, in excess of Rs. 50,000/- and in the case of any other person, any amount not recorded in the books of account.

1. Net Wealth — Section 2(m) — The difference between aggregate value of assets and the value of all the debts owed by the assessee on the valuation date which have been incurred in relation to the said assets.
2. Valuation date means the last day of the previous year.

CLUBBING OF ASSETS (SECTION 4)

Section 4(1)(a) — Analogous to Section 64 of the I.T. Act.

1. Assets transferred by the assessee to the spouse otherwise than for adequate consideration Assets transferred in consideration or in connection with agreement to live apart is excluded.
2. Assets held by minor child other than minor married daughter or child suffering from disability specified
   u/s. 80U Assets acquired by minor child out of income not clubbed under Proviso to Section 64(1A) to be excluded.
3. Assets transferred to a person or an AOP for the immediate or deferred benefit of the transferor, his or her spouse otherwise than for adequate consideration.
4. Assets transferred under revocable transfers.
5. Assets transferred to son’s wife for inadequate consideration.
6. Section 4(1)(b) — Partner of a firm or a member of an AOP — Value of interest in the assets of the firm or AOP computed in the manner laid down in Schedule III.
7. Section 4(1A) — Analogous to Section 64(2) of the I.T. Act — Separate assets converted by a member of an HUF into the property of the HUF.
8. Section 4(5) — Assets transferred under an irrevocable transfer, would be included when power to revoke arises.
9. Section 4(6) — Holder of an impartible estate.
10. Section 4(7)/(8) — Analogous to Sections 27(iii)/(iiia) and (iiib) of the I.T. Act — Deemed owner of a house

— Member of a co-operative society, company and AOP.

— Property in possession of a person as referred to in Sec. 53A of Transfer of Property Act, 1882 under part performance.

— Lessee other than month-to-month lessee and as referred to in clause (f) of Section 269UA of the I.T. Act.

EXEMPTIONS IN RESPECT OF ASSETS (SECTION 5)

1. Property held under trust for public purpose or a charitable or religious nature in India.
2. Interest in the Coparcenary property of an HUF of which he is a member.
3. Any one building occupied by a Ruler.
4. Jewellery in possession of a Ruler, recognised as his heirloom.
5. Assets acquired out of the moneys brought in by a non-resident Indian, who has returned to India with an intention to permanently reside in India. The exemption is for 7 successive assessment years.
6. One house or part of a house or a plot of land not exceeding 500 sq. mtrs. belonging to an individual or a Hindu undivided family
7. A plot of land comprising an area of 500 square metres or less.

VALUATION OF ASSETS (SECTION 7)

Value of assets other than Cash shall be as determined in the manner laid down in Schedule III.

Courtesy: ICAI Mat, Journals and VG Books

Aryan Singhania