Wealth Tax is chargeable with respect to ‘Net Wealth’ of the corresponding ‘Valuation Date’ of Individual/HUF and company at the rate of 1% of the amount by which the net wealth exceeds 30 lakhs rupees. No Wealth Tax is chargeable in respect of net wealth of any Cooperative society any Social Club, any Political Party.
Wealth Tax will not be applicable from the assessment year 2016-2017 onwards.
Valuation Date is on 31st March immediately preceding assessment year. So wealth tax is levied on the net wealth owned by a person on the valuation date.
The term Net Wealth represents the excess of assets over debts. Assets include Deemed Assets but do not contain exempted assets. Net Wealth is chargeable to Wealth Tax immediately following the assessment year.
Net Wealth is calculated as follows
|Assets under section 2(ea)||xxxxx|
|+ Deemed Assets under section 4||xxxxx|
|Less: Exempted Assets under section 5||xxxxx|
|Assets Chargeable to wealth tax||Balance|
|Less: Debt Owed under 2(m)||xxxxx|
or simply Net Wealth is calculated as
Net Wealth = Total Assets – Total Debts
What are Assets?
Assets are covered under Section 2(ae). They are
Guest House, Residential House or Commercial Building:
- Any building or land appurtenant to it whether used for the commercial or residential purpose or for the purpose of a guest house.
- A farm house situated within 25kms from local limits of any municipality.
1. Any House, if the following conditions are satisfied, is not treated as an Asset.
- It is meant exclusively for residential purposes.
- The company allows it to an employee.
- Gross annual salary of such employee is less than 10 lakh rupees.
2. Any house held as stock-in-trade.
3. Any house used for own business or own profession.
4. A Residential property which is let out for a minimum period of 300 days in the previous year is not treated as an asset.
5. Any property in the nature of commercial established or complex is not regarded as an asset.
Except the following tool any other motor car is an asset.
- Motorcars used by an assessee in the business of running them on hire.
- Motorcars treated as stock-in-trade.
Jewelry, Bullion, Utensils of Gold, Silver, etc.:
- Any article made of fully or partially of gold, silver, platinum, or any other precious metal.
- Any alloy containing one or more of such precious metals.
Boats and Aircrafts: Boats & Aircraft are treated as assets other than those used by the assessee for commercial purpose.
Urban Lands: An urban land is an asset whether it is agriculture land or non-agriculture land. It refers to the land situated within the municipality area or outside the municipality area not more than 8kms.
- Land classified as agriculture land in the records of government and used for agriculture purpose.
- Land on which construction of a building is not permissible under any law for a time being in force in the area in which such land is located.
- Land occupied by any building which has been constructed with the approval of an appropriate authority.
- Any unused land held by the assessee for industrial purposes for a period of 2 years from the date of acquisition by him.
- Any land held by an assessee as stock-in-trade for a period of 10 years from the date of acquisition.
Cash in Hand:
|Individual and HUF||Cash in hand on valuation date more than Rs. 50,000/-.|
|Any other Person||Any amounts not recorded in books of accounts.|
Assets Exempt From Tax ( Exempted Assets):
- Property held under trust.
- Residential Building of former ruler.
- Former rulers Jewelry.
Deemed Assets are defined Under Section 4 of Wealth Tax Act, 1957. For computing the Net Wealth of the assessee, the value of certain assets held by other persons shall be included. These assets are commonly known as Deemed Assets. The following assets are treated as Deemed Assets.
Example: Husband Sells shares to Wife for inadequate consideration on 1/08/2011. Wife sells the shares and buys a house property of its sales proceeds on 30/03/2012. Hence, HP is taxable in hands of Husband.
1. Asset Transfer by one spouse to another:
- Asset Transferred by individual to his/her spouse.
- The transfer may be direct or indirect.
- The asset is transferred other than for adequate consideration or in connection with an agreement to leave apart.
- Any Asset may be held by transferring on the relevant valuation date.
If all these conditions are satisfied then, the asset is included in the net wealth of transferor.
2. Assets held by Minor Child: In computing net wealth of individual, the value of assets on valuation date or held by minor child should be included
- The Net wealth of minor child will be included in the net wealth of that parent whose net wealth is greater.
3. Assets Transfer to a Person or an Association of Persons:
- Asset transfer by individual for the benefit of the transferor, his/her spouse.
4. Asset Transfer to Son’s Wife: The Relation between Father-in-Law or Mother-in-Law and Daughter-in-Law should subsist between transferor and transferee both on the date of transfer and on the valuation date.
5. Asset Transfer For the benefit of Son’s Wife.
6. Conversion by an individual of his self-occupied property into a joint family property.
Debts are taken from the total value of taxable assets, the value of debts owned on the Valuation Date shall be deducted.
- Only debt owned by the assessee on the Valuation Date are deductible.
- Debts should have an incurred in relation to those assets which are included in Net Wealth of an Assessee.
Valuation of Assets
Assets are valued as per the rules are given in Schedule III of Wealth Tax Act, 1957. These are the following under which Valuation of Assets is done.
Valuation of a Building:
Step1: Find out the Gross Maintainable Rent (GMR).
Step2: Find out the net maintainable rent that is
Goss Maintainable Rent – Any Amount of taxes relating to property – 15% of GMR
Step3: Capitalize the Net Maintainable Rent.
- Multiplying the Net Maintainable Rent by 12.5.
- In case the property is constructed on leasehold land, net maintainable rent is to be multiplied by 10 when the unexpired period of lease land is 50 years or more. It is multiplied by 8 where the unexpired period of leased land is less than 50 years.
Step4: (Add Premium)
- If the unbuilt area of a plot of land on which property is built exceeds specified area, then the premium is to be added.
Aggregate Area = Land on which property is built.
Unbuilt Area = Land on which no building is erected.
- Where property is situated in Bombay, Calcutta, Delhi, Madras, 60% of the aggregate area.
- Where property is situated at Agra, Bhopal, Amritsar, Ahmedabad, Banglore, Cochin, Indore, Hyderabad, Ludhiana, Nagpur, Madurai, Lucknow, Patna, Pune, Salem, Kanpur, Srinagar, Surat, Trivandrum, Tiruchanapalli, Varanasi, 65% of the aggregate area.
- Where property is situated at any other place, 70% of the aggregate area.
The amount of premium to be added to the Capitalized value is determined as follows:
|The Acess of unbuilt area||Premium|
|Not more than 5% of the aggregate area||NIL.|
|More than 5% but not more than 10% of the aggregate area||20% of the Capitalised Value.|
|More than 10% but less than 15%||30% of the Capitalised Value.|
|More than 15% but less than 20%||40% of the Capitalised Value.|
|More than 20% of the aggregate area||Rules as given.|
Thus, these are the steps that are used in Valuation of Assets.