The Hindu Business Line : Is wealth tax for real?

There are two direct taxes in India — income tax and wealth tax. Wealth tax Act is complex and real estate is subject to wealth tax. Valuation of real estate, the exemptions and deductions allowed, and so on make for an interesting study.

Who pays wealth tax?

Wealth tax is levied on the net wealth of the person. Only the following three categories are included:

· Individuals

· Hindu undivided families

· Companies.

Other forms such as partnership firms, association of persons, local authorities, public charitable or religious trusts (except those mentioned under Section 21A) are not subject to wealth tax.

Exemption

The following categories of persons are exempted from wealth tax. They need not file returns under the wealth tax Act.

1. Any company registered under the Companies Act, 1956

2. Co-operative society

3. Social club

4. Political party

5. Mutual fund specified under Section 10 (23D) of the Income Tax Act.

What is the basis of charge?

March 31 every year is taken as the basis for wealth tax. Every person has to pay wealth tax on the net wealth held by him on this `valuation date'. On what is wealth tax payable? Net wealth of Rs 15 lakh is exempted from wealth tax and the person has to pay one per cent tax on net wealth exceeding that limit. Net wealth is arrived at by deducting the sum of debts owed by the person from the assets owned by him.

Types of assets

Immovable property

Movable property

Deemed assets

Which are the assets chargeable to tax?

Both the nationality as well as the residential status must be considered to determine the chargeability to tax. Assets and debts are classified by their location — whether they are in India or outside.

Indian nationals

a) For those resident in India according to the Income Tax Act, chargeable to tax on assets, whether in India or outside, less debts located in India or outside.

b) For non-residents or resident but not ordinarily resident in India, chargeable to tax on all assets in India less debts in India.

Foreign nationals

Irrespective of residential status, they are chargeable to tax only on assets located in India, less debts located in India.

Hindu undivided families

The provisions applicable to an Indian national shall apply here.

The author is a Hyderabad-based chartered accountant.

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