Wealth tax may contribute significantly less than income tax to the country's coffers, but for those filing for wealth tax there are numerous steps to be negotiated before one gets the math right.

Who should pay wealth tax?

You are liable to pay wealth tax if you have taxable net wealth in excess of Rs 30 lakh. Residential status is an important factor. The thumb rule is that resident Indians are subject to wealth tax on their global assets, while non-resident Indians and foreigners are liable to pay tax only on assets located in India.

Persons of Indian origin/ NRIs permanently returning to India enjoy exemption from wealth tax for some time. Assets bought in India or acquired within one year preceding the date of return or any time thereafter would be exempt from wealth tax for seven years post return.

Assets that attract wealth tax

Generally only personal, non-productive assets are subject to wealth tax. To illustrate, residential houses excluding one house, jewellery, yachts, aircraft (not used for business) and cash exceeding Rs 50,000 would be liable for wealth tax. Urban land is also chargeable to wealth tax unless construction on it is not permitted under law. Assets used for business, as stock-in-trade or investments, let-out properties are excluded from the purview of wealth tax. The exception to this rule is motorcars used for business.

As only one house owned by an individual is exempt from wealth tax, all additionally owned residential properties would attract wealth tax if they are not let-out for most part of the year. Owners of multiple houses may need to consider letting out their properties to save on wealth tax.

One must also remember to include assets held by minor children and those transferred to certain close relatives (including spouse) for nil or inadequate consideration as part of one's own wealth.

Net wealth is the value of all assets (that are chargeable to wealth tax) held by an individual on the valuation date in excess of the value of all debts incurred in relation to these assets.

How to value assets

Assets liable for wealth tax should be valued according to guidelines under the law as on the valuation date — that is, March 31 every year.

What is the wealth-tax rate?

Wealth tax is payable at one per cent on net wealth in excess of Rs 30 lakh. Some of India's Double Taxation Avoidance Agreements (DTAAs) provide relief from double taxation for wealth tax as well. Hence, if you have been subject to wealth tax in any other country, such reliefs will need to be considered. Taxes may be paid online.

The annual due date for filing wealth tax return is July 31.

Extra checklist

Currently, as it's mandatory to quote PAN (permanent account number) for all financial and property transactions, it's easy to link all the Indian transactions of an individual.

The Finance Minister, Mr Pranab Mukherjee, has postponed the implementation of the Direct Taxes Code by another year. However, in the current Budget, he has strengthened his crusade against tax defaulters, especially owners of foreign assets. The income-tax provisions require residents and those ‘ordinarily resident' to disclose foreign assets (that is, immovable property, other assets, bank accounts and financial interests) in their tax return.

To ensure that the efforts of the tax officers in this direction are not hampered in any way, the Minister has extended the time limit from six to 16 years for issue of notice to reopen cases.

Online filing of tax returns and computerisation of tax records make detection and prosecution a simple affair.

A disciplined approach to maintaining a statement of assets owned by an individual will go a long way in simplifying the rigour for wealth-tax filings.

Aarti Raote is Senior Manager, Deloitte Haskins & Sells

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