WEALTH TAX

ASSETS

Productive

Unproductive

Income

No Income

Income Tax

Wealth Tax

No wealth Tax

Wealth Tax
Wealth is a tax on ASSETS Wealth Tax is paid by INDIVIDUALS/HUF/COMPANIES (Trust is assessable as Individual) (Firm is not assessable but Partners are assessable for assets of the firm) Wealth Tax is charged on Net Wealth Net Wealth = Total Assets -Total Debts

Cont.
WEALTH TaxableNET Limit Upto 30,00,000/TAX % 0%

Balance

1%

There is no surcharge & education cess on Wealth Tax. Wealth Tax is paid on the Assets owned by the Assessee on a Particular Date. This date is 31st March of the Year Preceding the Assessment Year. This date is known as Valuation Date

Cont..
Assets must belong to the assessee on the last moment of the Valuation Date.

Definition of assets
Asset means:

B.M.J.U.C.Y.

Building and Land Appurtenant to the Building Including: 1. Guest House 2. Farm House located within 25Kms from the limits of local authority.

Excluding: o Property occupied by the assessee for his own business/profession i.e. SOP(B) e.g. Office building, factory, shops etc o Residential Property let out for 300 days or more i.e. LOP o Commercial Complex. e.g. malls etc o Property held as stock in trade e.g. unsold flats of construction companies

o Residential Property ----- Allotted by Company ------to its whole-time Employee/Officer/Director ---------whose gross annual salary is less than 5 lakhs. Summary of Let Out Property o Residential: Exempt if LOP >= 300 days o Commercial: Single Unit: Taxable Complex: Exempt

Motor Car Excluding: 1. Held as Stock in Trade 2. Held for hiring business Jewellery Jewellery includes: Precious Stones, article made up of gold, silver or any other precious metal. Excluding: 1. Held as stock in trade.

 Motor Car: Additional Points

Motor Car Leased by Leasing Company: Asset in the Hands of Leasing Company Motor Car for Hire Purchase: Asset in the Hands of Hire Purchaser Busses & Trucks: Not a Motor Car Jeeps & Jonga: Motor Car Delivery Vans, Ambuances, 2 Wheeler & 3 Wheelers: Not Motor Cars

Urban Land
(Land within 8kms from limit of local authority)

Excluding: 1. Land on which construction is not allowed. 2. Land on which building is constructed with the permission of appropriate authority. 3. Land held as stock in trade (exempt for 10 years from the date of purchase) 4. Unused land held for industrial purpose (exempt for 2 years from the date of purchase)

Cash in Hand

Individual/HUF o Upto 50,000/- : Exempt o Balance: Taxable Companies o Recorded Amount: Exempt o Unrecorded Amount: Taxable

Yachts, Boats & Aircrafts Excluding: 1. Held for commercial purpose 2. Held for stock in Trade Note: Ships cannot be treated as Yachts or Boats Helicopter can be treated as Aircrafts

Section 45:
Assets held by following persons are exempt from Wealth Tax. (Co/Co/Po/So/Mu) 1. Companies Registered u/s 25 of Companies Act,1956. 2. Co-operative Society 3. Political Party 4. Social Club 5. Mutual Funds

Exempt Assets
Assets for charitable/religious purpose. Applicable only for assets used for the above purpose in India. One Palace of an Ex Ruler.
Exempt only if it is declared as his official residence

Jewellery of Ex Ruler. Conditions:

1. Recognized as Heirloom by CG before April 1, 1957

2. Should not be taken outside India except for the purpose and period as approved by CBDT 3. It should substantially remain in its original shape 4. Reasonable facility for inspection should be given to the officials of CG.

 Co Parcenary Interest Share of member in Net Wealth of HUF shall be exempt. (As it will be taxed in the hands of HUF) One House or Plot Only for Individual and HUF Either one House or one Plot (upto 500 sq mts)

Assets held by Indian Repatriate: Following Assets held by Indian repatriate are exempt for 7 consecutive years: 1. Money brought in India from abroad 2. Assets brought in India from abroad 3. Balance in NRE(non resident external) Account 4. Assets purchased out of money brought in India and balance in NRE Account. 5. Assets purchased in India within one year before the date of his arrival.

Deemed Assets
In the following cases, the assessee is liable to pay wealth tax on the assets owned by other person o Transfer for Inadequate Considerations (a) Transfer to spouse (b)Transfer to any other persons for the benefit of spouse (c) Transfer to sons wife (d)Transfer to any other person for the benefit of sons wife (e) Transfer to HUF

 Important Case: M.G. Kollanfulum

When Properties were transferred u/s 4, then it is not necessary that the properties concerned should have been an Asset within the definition of Asset. Husband sells shares to Wife for inadequate consideration on 01.08.2011. Wife slls the shares & buys a House Property of its sale proceeds on 30.03.2012. Hence HP is Taxable in the hands of Husband.

Suppose in above e.g. HP would be sold and Shares would have been purchased, what would be the case?
Indirect Transfer: Husband sells HP to Wife who in turn sells to D.I.L. deed in lieu Who will be taxed?

o Assets held by minor Exceptions: (a) Assets purchased out of Income arising to him by application of his Skills, Talent or Manual Labor (b)Assets held by handicapped children (c) Assets held by minor married daughter o Share in the Net Wealth of Partnership Firm o Building possessed but not owned o Assets acquired by way of lease (lease period > 12 yrs & Renewable after minimum 1 year)

Valuation of Assets
Assets are valued as per rules given in SCHEDULE III of Wealth Tax Act, 1957 B M J U C Y Capitalized NMR

Fair Market Value

Fair Market Value Fair Market Value Amount of Cash Fair Market Value

VALUATION OF BUILDING
Valuation of Building Capitalized NMR (Note 1) Cost of Acquisition and Improvement (Note 2) (Whichever is Higher) Add: Adjustment for unbuilt area (Note 3) Less: Adjustment for unearned increase (Note 4) Taxable Value Amount XXX XXX

XXX XXX

XXX

Note 1: Capitalized NMR

= NMR * Capitalization Factor Capitalization factor (CF):
Building Constructed on: Freehold Land Leasehold Land Remaining Lease >= 50 Years Remaining Lease < 50 Years 10.00 8.00 CF 12.50

Net Maintainable Rent:

Particulars Rs.

Gross Maintainable Rent (GMR) Less: 15% of GMR Less: Municipal Taxes Net Maintainable Rent (NMR)

XXX XXX XXX XXX

Gross Maintainable Rent:

Particulars Rs.

Municipal Value (always given) Actual Rent (next slide) (whichever is Higher) GMR

XXX XXX XXX

Actual Rent:
Particulars Annual Rent: (Always 12 Mts) Add: Benefits from Tenant (MRIP2) Rs XXX XXX

Municipal taxes paid by tenant

Repairs paid by tenant (Annual Rent * 1/9) Interest Benefits (Deposit Amount * {15% - Actual
rate})

XXX
XXX XXX XXX

Premium Charged (Premium amt/period of tenancy) Perquisites/Benefits

Actual Rent XXX

Note 2: Cost of Acquisition and Improvement Cost of Acqusition is to be taken into account only for the properties purchased after 31/03/1974. For properties purchased before 31/03/1974, Cost is to be IGNORED. Thus Taxable amount will be Capitalized NMR For any one Low Cost SOP(R), Cost of Acqusition is to be ignored. (Low cost: Metro cities: Rs. 50 L & Others Rs. 25L)

Note 3: Adjustment for un built area

If actual un built area is more than allowed unbuilt area then the value of property should be increased by the following %
Excess Un Built Area (Actual Allowed) Upto 5% > 5% upto 10% >10% upto 15% >15% upto 20% >20% Addition Nil 20% 30% 40% N.A.

Note 4: Adjustment for un earned increase: Amount Payable to Govt. = (Value of land as on valuation date Premium Paid)* xx%

*** Deduction on account of unearned increase cannot exceed 50% of the value of property (after adj. for unbuilt area)
Note 5: Advance Rent If advance rent give is more than 3 months rent, then such adv rent is treated like Deposit

Note 6: Cases where NMR method is not applicable: For such cases Taxable Value = FMV 1. If the excess un built area is more than 20%

2. If the property is constructed on leasehold land, the remaining period is upto 15 Yrs. (lease not renewable)
3. If the A.O. is of opinion NMR method is not practicable in a case. (prior approval of JC)

Valuation of jewellery
Taxable value of jewellery = FMV on valuation date

Along with return of net worth the assessee should submit following Forms:
(a) A statement in prescribed form i.e. FORM O-8 A (If the value of jewellery is upto 5 lakhs) (b) Report of Registered Valuer in FORM O -8 (if value of jewellery is more than 5 lakhs)

Valuation of Business Assets

If assessee carries on business and maintains regular books of accounts, then Schedule III value should be ignored. Taxable Value = Book Value/WDV

***If the schedule III value is more than book value/WDV and the difference is more than 20% of Book Value/WDV, then: Taxable Value = Schedule III value

Valuation of Share in Partnership Firm

In case of partnership firm, partners are liable to pay tax on their respective share. Share of each partner is calculated as follows: o Compute the Net Wealth of Partnership Firm (without giving effect to exemption u/s 5) o Distribute the net wealth of partnership firm as follows: a) To the extent of Partners Capital: Capital Ratio b) Balance Net Worth: Dissolution Ratio (or PSR) o Compute the Net Wealth of Individual Partners. (Add personal assets to the share a deduct personal liabilities)

Knowledge Test
Commercial property held as Stock in Trade Guest house in Rural Area Commercial Property let out for 340 days Farm house located 20kms away from mumbai Motor Car for office use Aircraft for office use Aircraft held by Kingfisher Airlines Diamonds Unused land held for Industrial Purpose (Purchase date 14.07.08) Furniture made of Silver Furniture made of Costly Wood

Liability of wealth tax of Deceased Person

When a person dies, his executors/administrator/Legal Representative shall pay Wealth Tax out of the assets of deceased (to the extent the estate is capable of meeting the charge) When a person dies without filing the wealth tax return, the A.O shall make the Assessment and determine the Net wealth and Tax payable. He shall issue appropriate notice to the deceased as if he is not died. The executors shall be called upon to furnish details and pay the taxes.

Imp Case: CWT v/s H.S. Chauhan

Question of debate: Whether penalty can be levied on the legal hairs if the Assessee dies before the A.O. levies Penalty. Section 19(3): Sec provides that provisions of sec 14(filing of return), sec 15 (Revised return, signing of return, Self Assessment) & sec 17(Income escaping Assessment, Interest on late filing of return) shall apply to the legal hairs as they would have applied to the deceased. However it is to be noted that provision of levying penalty is given in sec 18. Thus Interest can be levied for late filing but not penalty.