This is the time to travel and splurge. Sometimes people go overboard with shopping. They assume that purchases made from tax paid income are not liable to any tax. But these may attract wealth tax. Same applies for real estate—a second house or a plot, especially when rates increase. It’s assumed that only the sale of asset and not purchase has a tax implication, but wealth tax applies here, too.
Who is liable?
Wealth tax is generally computed on the market value of owned assets. However, if there are any borrowings or debt against any specified asset, the same needs to be reduced while computing net wealth, which will be subject to wealth tax. Wealth tax is levied only on the net wealth (i.e., assets minus debts incurred to acquire the assets) that exceeds Rs.30 lakh. As a general rule, if you are an Indian citizen and have always been in India for most of the period during the current year and previous years, you will qualify to be a Resident and Ordinarily Resident (ROR) of India wherein you will be subject to wealth tax on the specified global assets. NRIs or foreign citizens face wealth tax only on assets located in India subject to a few conditions for repatriating NRIs.
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How is it computed?
Tax at the rate of 1 per cent is levied on net wealth exceeding Rs.30 lakh. The value of assets as on March 31 is considered in computing the net wealth. Thus, if assets are sold during the year, wealth tax is not levied on those assets. However, if assets are purchased during the year, wealth tax will be levied.
What's covered?
Real estate, bullion, jewellery, car, utensils and articles of gold or silver, yachts, boats and aircraft, urban land, cash in hand (in excess of Rs.50,000) is subject to wealth tax. There are, however, exclusions, some of which include:
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■ House or car or jewellery used for business or stock in trade
■ House allotted by company to employees with certain salary levels
■ Assets transferred to relatives for inadequate consideration will be clubbed as assets owned by the transferor, wherein wealth tax is payable by the transferor.
Compliance process
There are specific rules. For jewellery exceeding a specified limit, a report of the registered valuer is required to be obtained. Wealth tax return is to be filed within the due date, which is same as the income tax return due date i.e., July 31 or September 30. Non-compliance of wealth tax provisions has interest and penal implications. Though the provisions of wealth tax are intended to tax the wealthy, some of the thresholds clearly need a revision considering the present income levels and inflation rate.
The writers are senior manager and manager of Deloitte Haskins & Sells LLP
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