What is wealth tax in India and who is liable to pay?

What is wealth tax in India and who is liable to payWhat is wealth tax in India and who is liable to pay?

Many of us would own more than one residential property and forget that it attracts wealth tax. Income tax department has tightened the controls and they are vigorously monitoring the wealth tax in India (as this would also folds under Income tax department) payments. In this article, I would detail about what is wealth tax in India, the assets which falls under this purview and who is liable to pay wealth tax in India.

What is wealth tax?

Wealth tax is like income tax which needs to be filed every year by 31st July. It is the part of the annual assessment. Wealth Tax is charged based on net wealth in the corresponding valuation date. The valuation date is 31st March. This is like direct tax on individuals. The benefits that you derive from ownership of property are taxed under this head. So, the wealth tax which you need to file before 31-Jul-2013 is for the period Apr-2012 to Mar-2013.

Also read: How to file income tax return online?

To whom Wealth Tax is applicable to?

Wealth tax is applicable to individuals, HUF’s and companies.

What assets are included in wealth tax computation?

  • Residential property which includes houses, guest house, commercial property
  • Urban Land
  • Aircrafts, Yachts and Boats
  • Motor Car
  • Cash in hand (beyond a limit of Rs 50,000)
  • Gold utensils, Gold, Silver
  • Assets transferred to spouse or minor children without adequate consideration would be included in individual wealth for computation of wealth tax

Exclusions from wealth tax

  • Property held for stock-in-trade
  • Gold deposit bonds
  • House given on rent for 300+ days in a financial year
  • House allotted by employer

What are the assets which are exempted from wealth tax?

  • Assets like shares and securities (Mutual funds, debentures etc.)
  • House or land does not extend 500 Square meters.

Residential Status is the key in computing the wealth tax

Residential status would be starting point in computing the wealth tax.

a) Indian resident – All assets whether owned in India or outside India would be included as assets in computing the wealth tax.

b) Non-Resident Indian – If the individual is Non-Resident-Indian, (NRI as per definition of income tax act) then assets owned in India only would be clubbed as assets in computing the wealth tax. Assets outside India would NOT be included in wealth tax computation.

Step-by-Step process about wealth tax computation and payment

Step-1: All assets which are falling under wealth tax definition would be clubbed to arrive as gross wealth. Its current value should be considered while doing this computation.

Step-2: All debts owed in connection with assets bought would be deductable.

Step-3: Net taxable wealth would be arrived (Gross wealth minus any debts owned in connecting with assets)

Step-4: Compute Wealth tax @ 1% above Rs 30 lakhs wealth.

Step-5: Pay wealth tax online/offline through form ITNS-282.

Step-6: File Wealth tax returns before 31st July with income tax office of your respective circle/ward.

You may also like: How to check income tax refund online?

Some of the FAQ’s

1) What happens if we do not pay wealth tax and file wealth tax returns before 31st July?

You would be penalized with 1% interest rate per month for every month delay in payment and in case you do not file return, the penalty could be 100% to 500% of wealth tax payable with interest. In extreme cases an assessee could be imprisoned.

2) Can we file wealth tax returns online?

No, currently wealth tax returns are only off-line. You need to visit income tax office of your respective ward/circle to file returns.

3) I invest in stocks, mutual funds or debentures; do I need to pay wealth tax?

No, these are exempted from wealth tax.

4) I am paying income tax, why do I need to pay wealth tax?

Income tax and wealth tax are two different things. You need to pay wealth tax based on residential status and based on the net taxable assets you have after the valuation date but before the due date.

5) I have taken a housing loan and purchased a house, do I need to pay wealth tax?

While computing your net taxable wealth, you need to include your current value of the house and reduce your housing loan (debts owned). Finally, compute the net taxable wealth. If this is exceeding Rs 30 lakhs, you need to pay 1% of the amount exceeding Rs 30 lakhs.

Conclusion: We do not generally pay attention to wealth tax as much attention as we pay for income tax filing. If you own more than one property or have net taxable assets more than Rs 30 Lakhs, it is better to declare wealth tax to avoid any penalties at later point of time.

Readers, what are your experiences in wealth tax payments?

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Suresh
What is wealth tax and who is liable to pay it

Suresh KP

37 comments

  1. Hi Suresh,
    I am a NRI, I got possession of my 2 house in Nov 2013, and I will not be able to be in India before 31st July 2014, so how can I pay my wealth tax ?
    Thanks
    Nandu

    1. Hi Nandu, Wealth tax is not online now. You may need to take help of your family members or friends in case you want to pay tax. I don’t think there is any other alternative options.

  2. I bought a flat in July 2013 and builder had paid the property tax in May 2013 for the year 2013 – 14.  Could you please tell me that whether builder is allowed to take this amount (paid property tax) from me or not.

    In flat quotation builder has not mentioned this amount. Now, he is asking to pay this amount as well. Please help me to understand this.

    1. Aditya, As per my knowledge property tax needs to be paid in advance for the financial year before Sep month. Pls have a look at the receipt, it should be for 2013-14. Hence for 9 months in financial year, you should bear this. For 3 months, ideally builder should take it. You can discuss this with builder. 

  3. When we calculate income tax on more than one properties, the proprties are "deemed to be let out" and notional/market rent of the property is added to the income. Do we still have to pay Wealth Tax on the property which has actually not been let out but deemed to be let out. 

    Are the two taxes: income tax and Wealth tax, not at variance here?

    1. Agree. It looks it is getting duplicated, but in realty it is not. Income tax is paid based on income received and wealth tax based on the net taxable assets. This is the basic difference.

      1. essentially income tax is based on your income stream and wealth tax is based on your balance sheet (assets net of liabilities)

  4. Dear Suresh Sir, I'm salaried person earning 33k/month..I have inherited a land (farming) from my mother who received that from her forefathers in kerala .the present sale price is 50-60 lakhs . if i sell it and want to put that  complete amount in fixed deposit, will I invite tax on both the sale amount(50-60lakhs) and the earnings(intrest) from the FD? OR suppose, if I partly invest it in FD(20 lakhs) and rest buy a house (immediately in a year) what will be the scenario for tax in both the cases? what would be advisable? (im thinking FD intrest in case if I loose my job) thanks in advance..

    1. Scenario 3 : suppose if I invest the complete amount in FD and take a loan to buy a house of 40-50 lakhs, would that be safer? (here I am thinking of keeping the capital amount safe for long term- earn an interest plus buy a house)

      1. I could not relate your question with the subject of the article. If your question is entirely differnet, here is the answer. If you keep the FD, you would get 9% interest, where as you need to pay housing loan interest which would be more than 10%. Hence you would be the loser. 

        1. thanks for a quick response. I hope the capital gain tax is  not calculated on the present sale rate hence the amount would be very small taking into consideration the old index rate before 1980's.

           reinvesting the whole amount in a property is blocking and taking a risk of loosing my capital amount if market rates of the house falls (the same with job) . where is the backup?  isn't the loan EMI thinly spread across even though I have to pay more? will not the loan help me to claim exemption on my income?

    2. Praveen 1) This would attract long term capital gain tax 2) Interest on FD is taxable 3) If you re-invest for long term capital gain exemption (you can refer this in seperate article), you need not paid long term capital gain tax. If possible, try to buy another property and avoid LTCG tax.

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