What 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?
If you enjoyed this article, share this with your friends and colleagues through Facebook and twitter.
What is wealth tax and who is liable to pay it
- SBI Life eShield Next Term Plan – Features, Benefits and Review - October 18, 2021
- Aditya Birla Sun Life NASDAQ 100 FoF (NFO) – Should you invest? - October 15, 2021
- ITI Pharma and Healthcare Fund Review – Is this NFO late in this bull run? - October 14, 2021