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Wealth Tax is a kind of annual tax which is charged every year on the net wealth of the individual, Hindu Undivided Family (HUF) and company on the corresponding valuation date. NRIs are also held liable to pay wealth tax on the amount of their wealth in India.
Wealth Tax Exemption Limit
Wealth Tax has its own exemption limit. In the case of wealth tax, there is a basic exemption of 15 Lakhs. Wealth Tax is chargeable at the rate of 1% on the net worth of the individual which exceeds 15 Lakhs. Direct Tax Code in India has proposed to increase the exemption limit of wealth tax in India from existing 15 Lakhs to 1 Crore due to increasing living standards and property and gold prices
Assets Coming under purview of Wealth Tax are
- Residential House or a Guest House
- Motor Car
- Commercial Building
- Any farm house which is situated within 25 Kilometres from the local limits of any municipality
- Jewellery, Bullions
- Yachts, boat and aircrafts
- Any cash which is exceeding Rs 50,000
The following assets shall not be included in the individual’s net worth while wealth tax calculation. They are as follows
- Property held under a Trust may be a Improvement Trust
- Residential building of a former ruler
- Jewellery in possession of a former ruler
- Residential or commercial property which forms part of stock-in-trade
- Financial assets like stocks, debentures, bonds, fixed deposits
Deemed Assets
While calculating wealth tax, there are certain assets which don’t belong to an assesse are also deemed to be included while calculating net worth of an individual for the purpose of wealth tax. Some of them are
- Assets transferred to spouse without adequate consideration
- Assets held by a minor child. He may be physically or mentally retarded
- Assets transferred without adequate consideration to son’s wife
- Assets transferred otherwise than under an irrevocable transfer
- Money being gifted by mere book enteries without any such payment actually made
Valuation Date
Wealth Tax is levied on the net wealth of an individual valued on a certain day that is called the valuation date. The valuation date is always taken as the last day of the previous year relevant to the assessment year. Hence, valuation date is March 31, immediately preceding the assessment year
Question: Does mutual fund investments or investment in equity comes under the scanner of wealth tax
Answer: Any investment held under mutual fund schemes upto any amount doesn’t come under the purview of wealth tax and hence exempted from wealth tax. Though short term capital gains tax would be charged on any investment made in mutual funds for a period of less than one year.
Illustration
| Residential House outside India | 25 Lakhs | |||
| Jewellery in India | 25 Lakhs | |||
| Loans taken for residential purposes outside India | 5 Lakhs | |||
| Loans taken for acquiring Jewellery | 5 Lakhs | |||
Calculation of Taxable Wealth (Net Worth)
| Jewellery In India | 25 Lakhs | |||
| Less Debt owned for jewellery | 5 Lakhs | |||
| Net value of jewellery | 20 Lakhs | |||
| Property outside India | 25 Lakhs | |||
| Less Debt owned | 5 Lakhs | |||
| Net value of Property | 20 Lakhs | |||
Total net worth for calculating Wealth Tax comes at 40 Lakhs. Wealth Tax @ 1% above 15 Lakhs equals to Rs 25000
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