Basic Concepts of Wealth Tax

1. PREPARED BY:
KIRTI RASHMI
LLOYD LAW COLLEGE.

2. INTRODUCTION
1. Introduced in 1957.
2. Revised in 1993 by recommendation of
CHELLIAH COMMITTEE.
3. Repealed by Budget 2015.
4. No longer leviable from the assessment year
2016-2017.

3. REASONS FOR ABOLITION:
 Tax simplification
 Compliance
 Remove lacunas :
 Tax payers were required to value asset and
obtain report from Registered valuers leading to
complexities.
 Difficult for department to track unproductive
properties due to under report or undervaluation
of assets.

4. CURRENT POSITION
1. The assessee having income more than 1
crore in the previous year had to pay
additional surcharge of 2% for the assessment
year 2016-2017 after abolition of wealth tax.
2. However, this additional surcharge keeps on
fluctuating as per budget of that year.
3. Now the current rate is 5% additional
surcharge for assessment year 2017-18.

5. CALCULATION: A.Y 2016-17
 Net Taxable Income (from all heads after all
adjustments relating to deemed income, rebate ,
exemptions and deductions) = xxxxxx
1. Tax (by applying slab rate of that year)= xxxx
2. Surcharge ( 10%+2%) = xxxx
3. Tax payable (1+2) = xxxx
4. EC 2% = xx
5. SHEC 1% = xx
6. Net Tax payable = (3+4+5) = xxxxx

6. INTRODUCTION OF THE ACT:
1. It extends to whole of India.
2. Came into force on 1st April 1957.
3. Direct tax.
4. Charges the NET WEALTH of the assessee.
5. Tax on the benefit derived from the
ownership of property (net market value of
the assets owned)

7. CHARGEABILITY:
1. Section 3.
2. On Valuation date – 31st March of the
previous year.
3. Levied on amount in excess of 30lakhs.
4. Rate of tax is 1% on that amount.

8. APPLICABILITY:
1. Levied on : Individual, HUF and Company.
2. Individual includes:
 trustee of a private trust.
 Trust established for the benefit of Hindu deities.
 Holder of an impartial estate.
 Heirs of an individual.
 AOP
 Mapilla Marumakkathayam tarwards (customary
law in Kerala for succession) – [ WTO v.
Mammed Kaji (C.K) 1980 129 ITR 307 SC ]

9. Person not liable to pay wealth tax:
 Company registered u/s. 25 of the Companies
Act, 1956.
 Any Co-operative society.
 Social Club.
 Political Party.
 Mutual fund u/s. 10(23D) of the Income Tax
Act.
 RBI.

10. Calculation under the Act (section3):
 Aggregate value of the asset xxxxx
Add: deemed asset xxx
Less: exempted u/s. 5 (xx)
Less: debts incurred in relation to above said assets (xx)
AGGREGTE VALUE = XXXX
 If this aggregate value exceeds 30L, the excess amount
will be taxed @1%.

11. Assets includes: (section2ea)
1. ANY HOUSE, BUILDING OR LAND APPURTENANT thereto, whether used for:
 Residential purpose
 Commercial purpose
 Maintaining a guest house
 Including a farm house situated within 25 km from the local limits of any municipality.
Not include:
i. Residential house allotted by a company to employee or officer or whole time director
having gross annual salary of 10lakhs.
ii. Any house for residential or commercial purpose which forms part of stock-in-trade.
iii. Any house occupied by the assessee for the purpose of PGBP.
iv. Any residential property let out for a minimum period of 300 days in the previous year.
v. Any property in the nature of commercial establishment or complexes.
vi. Business owned by partners but used in the firm’s business is deemed as the assessee’s
property for his PGBP.

12. 2. MOTOR CARS:
 Whether Indian or foreign
 Whether taken on hire
 Whether used for own business or personal purpose
 In case of leasing company, it is an asset.
Not Include:
i. Used by the assessee in the business of running them on hire.
ii. Treated as stock in trade.
3. YACHTS, BOATS & AIRCRAFTS:
 Helicopter is also included as aircraft.
 Ships are not mentioned.
Not include:
i. for earning business.
ii. Held as stock in trade.

13. 4. JEWELLERY, BULLION, UTENSILS OF GOLD OR SILVER OR ANY
PRECIOUS METAL OR ALLOY OF METALS, PRECIOUS STONES.
 Whether set in any furniture, utensils or other articles.
 Or worked or sewn into any wearing apparel.
Not include:
i. If used in stock-in-trade.
ii. Gold deposit bonds under government scheme of 1999.
5. URBAN LAND:
 Land situated within the jurisdiction of a municipality or cantonment
board and which has a population of 10,000 and more (as per last census).
 Measured aerially
 Up to 2km from the local limits of municipality – 10K-1L population.
 Up to 4km from the local limits of municipality – 1L-10L population.
 Up to 8km from the local limits of municipality – above10L population.

14. Not include:
i. Agricultural land
ii. Land on which construction of building is not permissible under any law
for the time being in force.
iii. Land occupied by any building which has been construed with the
approval of the appropriate authority.
iv. Land held by assessee for industrial purpose for 2(two) years from the
date of its acquisition.
v. Land held as stock-in-trade for 10(ten)years.
6. CASH IN HAND:
 Individual, HUF – cash in excess of Rs. 50,000
 Other person- cash in hand not recorded in the books of accounts.
Not include:
i. balance in bank account and cheque in hand.

15. Deemed Assets: (section 4)
1. Asset transferred:
i. By one spouse to another.
ii. To a person or AOP.
iii. To a person or AOP under revocable transfers.
iv. To son’s wife
v. For benefit of son’s wife.
Conditions:
i. After 31st March 1956
ii. Directly or indirectly
iii. With or without adequate consideration
iv. Not include if asset is transferred under an agreement to live apart.
2. Assets held by a Minor child:
a) If marriage of parents subsists- add to spouse whose net wealth is greater before
adding minor’s asset.
b) If marriage does not subsists- who maintains the child in the previous year.

16. Not include:
i. Asset held by a minor child who is suffering from any disability u/s.
80U of Income Tax Act.
ii. Minor married daughter.
iii. Asset acquired by a minor child out of income from manual work
done by him or income from activity which involves his personal
skill, knowledge or experience.
iv. Legitimate or adopted child.
3. Interest in the assets of the Partnership firm/ AOP.
4. Conversion by an individual of his self acquired property into joint
family property.
5. Gifts by book entries.
6. Impartial estate.
7. Property held by a member of a housing society.
8. Property held by a person in part performance of contract (section
53 T.P.A)

17. Exempted Assets: (section 5)
1. Property held under a trust :
i. For public religious purpose and business of printing, publication of books
as notified by Central Government.
ii. Charitable purpose and business is mainly carried on by the beneficiaries
of the institution, fund or trust u/s. 10(23B) of 20(23C) of I.T Act, 1961.
iii. Any other business assets of public charitable/religious trust is not exempt.
2. Co parcenary interest in HUF
3. Residential building of a former ruler.
4. Former Ruler’s jewellery:
i. kept in India and shall not be removed outside India except for a purpose
and period approved by the board.
ii. Reasonable steps taken to keep it in original shape.
iii. Central Government is allowed to examine it.

18. 5. Individual/HUF:
i. One house or part.
ii. Or plot of land up to 500 sq.mt.
iii. Whether self occupied or let out.
iv. Or whether owned by more than one person.
6. Assets belonging to Indian Repatriates:
Assessee- person of Indian origin or citizen of India who was
ordinarily residing in a foreign country and who has returned
to India with intention to permanently reside- Not taxable for
7 successive years for :
i. Moneys
ii. Value of asset.
iii. Moneys standing to the credit of such NR(external) A/c in any
Indian Bank.
iv. Value of assets acquired by such money and such bank a/c
within 1 year of date of return.

19. Scope of liability: (section6)
1. Individual- citizen and resident, HUF/Company-resident :
i. All assets in India and outside- include
ii. All debts in India and outside-exclude
2. Individual- citizen and resident/resident not ordinarily resident, HUF- non
resident/resident not ordinarily resident, Company- Non resident:
(taxable if income is related to India)
i. All assets (except debts) and interest whereon exempt u/s. 10 of I.T Act,1961
are taxable.
ii. All debts in India- deduct.
iii. All assets and debts outside India – exclude.
3. Individual- not citizen but resident/non resident/resident not ordinarily
resident:
(chargeable only if the wealth is generated in India)
i. All assets (except debts) and interest whereon exempt u/s. 10 of I.T Act,1961
are taxable.
ii. All debts in India- deduct.
iii. All assets and debts outside India – exclude.

20. Conclusion:
Wealth tax is commonly known as Capital tax, equity tax or Net
worth tax. Social and economic stability is the essence of levy of
wealth tax as it controls the concentration of wealth in few hands.
Also, the revenue generated from the super rich in form of wealth tax
is used in the economic growth of the country.
It taxes the accumulated stock of purchasing power in contrast to
Income tax, which is the tax on the flow of assets. The tax base is net
wealth i.e. net assets- net liabilities.
It is repealed in the year 2015.
And so, from the assessment year 2016-17, taxpayers are not required
to file separate wealth tax return. Now it is included in the Income
tax return itself in the form of additional surcharge.
THANK YOU.