Wealth tax in India is a part of direct taxes just like income tax. As Income tax is levied on the income you earn, Wealth tax in India is levied on wealth you have accumulated. As wealth itself is somewhat misinterpreted term so no middle class person calls itself wealthy and thus do not pay heed to wealth tax. But wealth has its own definition as per wealth tax act, 1957. This article is about understanding the basics of wealth tax in India , who should pay this and consequences of non-compliance.
Did you know: If you evade wealth tax payments, then tax authorities may impose penalty of upto 500% of the Tax amount sought to be evaded and in extreme cases imprisonment of upto 7 years can be imposed.
What is wealth tax in India?
Wealth tax in India is a tax levied on the specified unproductive assets in your assets/investment portfolio. Unproductive assets mean those assets which don’t generate any income (taxable or non-taxable). Like Jewellery, Land, Second house property which is not let out etc. If you are Indian national and resident as per tax laws, you will have to pay tax on your global assets too.
Every individual and HUF has to pay wealth tax @1% if the wealth exceeds Rs 30 lakh and file wealth tax return by 31st July immediately following the end of financial year. However date of filing return may vary in cases where the accounts are required to be audited. Also keep in mind that this tax is on per year basis.
What assets constitute wealth as per wealth tax in India?
Below are the assets details as defined as wealth under wealth tax act.
Basically wealth has been divided in 6 types – House, Motor cars, Jewelry, Air/Water vehicles and Land and even cash in excess of Rs 50,000/- . As I mentioned above that this tax is on unproductive assets. So if you have cash of Rs 2 lakh in hand and is not generating any return (taxable or non taxable) then this will be treated as your wealth and falls in the purview of wealth tax. All mutual funds, Fixed deposits, Exchange traded funds, Insurance policies etc. does not fall under wealth tax act. But,
- if you have second house which is not let out for 300 or more days then the value of that house becomes a part of your wealth, If you have farm house situated within 25 km of municipality limits then also it becomes your wealth,
- Motor cars if not being used for business purpose is a part of your wealth
- Jewelry includes jewelry, bullion, furniture, utensils, or any other article made up of gold, silver, platinum or any other precious metal, unless it is being used for business purpose and is a part of stock in trade. It does not include gold deposit bonds issued under gold deposit scheme.
- Yachts, Boats, Aircrafts if not being used for business purpose
- Urban land unless construction on that land is not permissible by law, or is held by assesse for industrial purposes for a period of 2 years from the date of acquisition
Do note that wealth tax is always levied on the net assets, which means that if any kind of loan was taken to buy that asset then that loan amount will be deducted from the total value of assets.
Also keep in mind that it also includes all those assets which are transferred by you to your wife, minor child or to son’s wife or any other person or association of person without any adequate consideration. ( Read : Tax planning Tips )
Do NRIs also have to pay wealth tax in India?
Yes, NRIs are also subject to wealth tax for the Assets purchased in India. However there’s one exception here. If NRIs are coming back to India for good, bring along with some assets or purchase the assets as defined in the wealth tax act from the money they brought from the country of their residence, that money and purchases are exempt from this law. But the condition is that they have to make the purchases within 1 year prior to the date of return/comeback or at any time thereafter. The exemption is available for 7 successive assessment years from the date of return to India.
Valuation of Assets and Computation of wealth tax in India
Valuation date for Assets comes under wealth tax purview is the last day of previous year i.e 31st March. Here’s how you can compute your wealth tax:
|A||Value of Assets belonged to Assesse ( including those given to family members without adequate consideration)||–|
|B||Assets exempted under Wealth tax act||–|
|C||Gross wealth (A-B)||–|
|D||Debts/Loans belonged to Assets under Gross Wealth||–|
|E||Net Wealth (C-D)||–|
|F||Exemption Limit||30 lakh|
|Wealth Chargeable to Tax @ 1% (E-F)||–|
As they say ignorance is no excuse and this applies to Wealth tax also. If you think that you fall under the purview of wealth tax but have been avoiding or evading just under the pretext of ignorance, then get up and do the calculations as per the table above , You may take a professional help who may also help you in some tax planning and reduction in your tax liability.
Hope you find this article on wealth tax in India useful. Do share you views.