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Unlike income tax, wealth tax is a neglected direct tax, which most people forget or avoid paying. Let’s examine some important aspects of wealth tax here:
What is Wealth Tax?
Wealth Tax is payable on ownership of assets, irrespective of the fact whether the asset gives you income or not. This needs to be paid every year if the net wealth of the individual exceeds Rs. 30 lakhs. The cut-off date for calculating the net assets position is 31st March every year. There are some exceptions and conditions to this provision as given below.
What is the rate of Wealth Tax to be paid and who is subject to Wealth Tax?
A wealth tax of 1% of the amount of wealth in excess of Rs. 30 lakhs should be paid on an annual basis. Both individuals and Hindu Undivided Family trusts are subject to Wealth Tax.
What are the assets which come under the ambit of Wealth Tax?
Wealth Tax is payable on unproductive and idle assets. This means if you own assets such as shares, mutual funds, ULIPs, gold funds, savings accounts, fixed deposits and gold ETFs, these are not subject to wealth tax. The most popular ‘unproductive assets’ falling under the scope of Wealth Tax are real estate, jewellery and cars. Other assets such as yachts, aircrafts, boats, urban land, bullion and furniture made of any precious metal are also subject to wealth tax.
In the case of house property, wealth tax is attracted if you own more than one house, from the second property onwards. However, if the house is let out on rent for a minimum of 300 days, it is exempt. Wealth Tax is also exempt if the property is held as a stock in trade or if it is used for business. In case any of the exemptions are not applicable, you can show the higher value house as the exempt property, and include the lower value house in net wealth calculations. Also, any home loan taken to secure the property can be claimed as a deduction from the value of the house.
In case of jewellery, ornaments are subject to wealth tax, irrespective of whether it is bought, gifted or inherited and held in both physical form as well as if they are set in furniture or clothes. Even cash held in excess of Rs. 50,000 is subject to Wealth Tax.
In the case of cars, the market price of the car will be considered while determining if the assessee is subject to Wealth Tax. Tax is to be paid if the value of the car exceeds Rs. 30 lakhs for a single assessee. Similar to house property, there are some exceptions even for cars. If you are in the car hire business, then this is an exception.
You must also remember that wealth tax, like income tax, is also subject to clubbing provisions; so don’t forget to consider this when you transfer the asset to your spouse. Any transfer without adequate consideration to your HUF, your spouse or your son’s wife will make you a deemed owner.
Wealth Tax, although not taken very seriously by the Income Tax department, is nevertheless subject to penalty if avoided. So remember not to take this lightly. Not paying wealth tax can attract penalty and also seven years imprisonment if the wealth tax to be paid exceeds Rs. 1 lakh. If you do not pay Wealth Tax on time, you should pay 1% interest on the tax for every month of delay. You must use form BA to file your Wealth Tax returns and the last date to pay this tax is 31st July every year. Have you paid your Wealth Tax yet?
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