by Mr. G. Karthikeyan, Chartered Accountant
Mr. Seshanaraya owns
3 residential properties, including inherited & purchased. He has also
invested substantially in gold & diamonds. Mr. Seshanaraya had meticulously
filed his income taxes and declared all his income correctly every year.
One can just about
imagine his utter shock when he received a notice from the Income Tax
Department for not filing Wealth Tax returns.
Many like him were
under the impression that by filing Income Tax returns and paying the due
taxes, they have ensured complete compliance on the personal tax front. Well,
it is time to say “Hello” to Wealth Tax.
 |
G. Karthikeyan, Chartered Accountant
In the a nut shell,
the Wealth Tax Act, 1957, provides that every Individual, Hindu Undivided
Family and Company whose net wealth exceeds the threshold limit of Rs. 30 lakh
is subject to Wealth Tax payment. Net wealth is the aggregate value of all
assets (including deemed assets), belonging to the tax payer on the valuation
date, minus the aggregate value of all debts owed by the tax payer on the
valuation date.
The wealth tax is one
per cent on the net wealth that exceeds the basic limit of Rs. 30 lakh.
For example, if the
net wealth of Seshanaraya is valued about Rs.75 lakh, his wealth tax liability
for the year is Rs.75,000. that is 1% of Rs.75 lakh.
So how does the Act
define wealth?
Wealth, in terms of
the Wealth Tax Act refers to any asset owned which is not put to productive
use.
For example, in
addition to one self-occupied house property which is exempt, the house
property rented out may not be included on the Wealth Tax return as an asset.
But, a piece of
vacant land will constitute an asset since the land is unproductive in its
current form. Of course, agricultural land is not subject to Wealth Tax.
The major component
that forms part of taxable wealth is gold, silver, motor cars, vacant land etc.
Any loans or liability associated with the taxable asset can be reduced for the
purpose of computing net wealth.
Any asset that is
transferred without adequate consideration has the chance of being clubbed with
the transferor’s net wealth.
What will be the
advantage of filing my Wealth Tax return ?
Generally, assets
such as cash, gold or silver not accounted in the Income Tax return can be
seized by the Tax department in the event of a search.
However, if the tax
payer had declared the jewels and cash in the Wealth Tax return, the same
cannot be seized by the Tax officials and the same cannot be questioned.
At current gold
rates, owning 125 sovereigns of gold jewellery will put the person over the
Wealth Tax threshold limit.
Considering the fact
that Indian families traditionally invest in gold and cultural practice of
gifting jewels to daughters during auspicious occasions, 125 sovereigns is not
huge and thereby many middle class Indians will also be subject to Wealth Tax
net. Perhaps, it is time for the new Government to consider an upward revision
of the basic limit of Rs.30 lakhs.
Nevertheless, taxing
the rich according to their wealth serves the canon of equity in taxation and
provides much needed financing to the government.
About the Author.
Mr. G. Karthikeyan is
a Coimbatore-based Chartered Accountant
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