Pay for your riches: Taxability of wealth and its implications
The Financial Express
13 September 2011 by
Senior tax professional,
Ernst & Young
According to the provisions of the Wealth Tax Act, taxable wealth broadly refers to the excess of assets over the debts incurred to acquire them. Tangible assets, such as residential house, commercial building, guest house or farm house (subject to specifications), motor cars, yachts, boats and aircraft, and urban land, are all chargeable to wealth tax. Also, personal effects, such as jewellery, bullion and utensils made of precious metals, would constitute taxable wealth. Cash in hand in excess of R50,000 is taxable as well.
However, any residential property let out for more than 300 days during the financial year, commercial establishments or complexes, houses occupied for the purpose of business or profession, motor cars, jewellery, bullion, utensils, yachts, boats and aircraft (if they are used for commercial purposes) have not been classified as wealth. Also, one house or a part of the house or a plot of land (measuring 500 square metre or less) held by an individual or a Hindu Undivided Family is excluded from the ambit of wealth tax.
If the taxable wealth of an individual as on the last date of a financial year, i.e. March 31, is less than R30 lakh, the individual is not liable to wealth tax. However, if the taxable wealth exceeds this limit on March 31, on such excess, the individual is required to pay wealth tax at 1%. Wealth tax is required to be paid prior to filing the wealth tax return with the income-tax authorities. The due date for filing a wealth tax return by individuals for a financial year is July 31, immediately after the end of the financial year. The individual is required to file the wealth tax return in Form BA and submit it with the income-tax authorities.
The taxability of wealth also depends on the residential status and the nationality of an individual. If you are an Indian citizen and qualify as a resident in India, your wealth in and outside India is liable to wealth tax in India.
The Direct Taxes Code (DTC) Bill, 2010, to take effect from April 1, 2012, has not suggested a change in the rate of wealth tax. However, it has suggested certain additions to the list of taxable assets, such as work of art, watches, sculptures, archeological collections and paintings. It has also suggested that cash in hand in excess of R2 lakh should be considered as taxable wealth and raised the non-taxable wealth threshold to R1 crore.
Therefore, while one accumulates wealth, it is also important to keep a watch on whether their assets would qualify as taxable wealth and, appropriately, comply with the wealth tax laws; because being rich may not only attract envy, but also attention from the curious eye.