While
Income tax is payable on
the total taxable Income
earned by an individual
in one year, wealth tax
is paid on the
possession of certain
assets which fall under
the Wealth Tax Act of
the Indian taxation
system. A wealth tax is
a tax on the accumulated
stock of purchasing
power, in contrast to
Income tax, which is a
tax on the flow of
assets (a change in
stock). Wealth tax is a
direct tax levied on the
ownership of certain
assets by individuals
and Hindu Undivided
Families (HUFs) even
though these assets may
not generate any Income.
It is governed by the
Wealth Tax Act, 1957.
Under the Act, the
tax is charged in
respect of the wealth
held during the
assessment year by the
following:
- Individual
- Hindu Undivided
Family (HUF)
- Company
Can
ignore Wealth Tax?
Penalties related to
ignorance of wealth tax
are much more severe as
compared to that of
Income tax. Remember
that ignoring wealth tax
can lead to serious
problems for a taxpayer,
with the penalty ranging
from 100% to 500% of the
unpaid tax, and in
extreme cases, even
jail.
What
is Taxable?
The assets which are
taxable under the Wealth
Tax Act are:
- Residential
property other than
one house
- Guesthouse
- Farmhouse
- Cars (unless used
for commercial
hiring)
- Precious metals
including those in
the form of
jewellery
- Gold
- Air crafts,
yachts, boats
- Urban land
- Cash in hand in
excess of Rs 50,000.
In addition to these,
all assets transferred
by individuals to their
minor children and to a
spouse for inadequate
consideration also
attract wealth tax.
cases, even jail.
What
is exempt from Wealth
Tax?
Following assets are
exempt from the purview
of Wealth Tax:
- any one
residential property
- commercial
property
- financial assets
like shares, mutual
funds, debentures
- any outstanding
loan taken to buy
the asset
- any residential
properties which are
rented for at least
300 days in a year.
Remember that the
rental income from
such property is
counted under
Section 24 as
"Income from
House Property"
and taxed under
Section 24.
In India, the extent of
taxable wealth for
individuals differs with
their residential
status. For resident
Indians, net taxable
wealth will include all
assets in India and
abroad whereas for
non-resident Indians,
net taxable wealth
includes only those
assets which are in
India. |
