All Indians are liable to pay wealth tax on specified assets. One also incurs wealth tax liability if one is a resident with assets abroad. As you can’t escape this tax, it is important you understand its intricacies.
Purview of wealth tax: Wealth tax is payable on personal assets such as residential property, jewellery, yachts, boats, aircraft (used for personal use) and cash in excess of `50,000. Vacant urban land is also liable to be taxed. However, assets used for business or commercial ventures, such as merchandise and equipment, and rented property is excluded from the scope of wealth tax. Motor cars used for business needs are an exception. As a taxpayer, one needs to know more about wealth tax rules for residential property.
The government allows taxpayers exemption from wealth tax only for one residential property. An individual owning more than one residence is subject to wealth tax on the remaining houses if they are not rented for most part of the year. However, what most people fail to realise this. Hence, to save tax, can consider letting out those residential properties. There are some other wealth tax nuances that one needs to know.
According to wealth tax rules, if an individual transfers assets to certain relatives (including spouse) for no or inadequate consideration, then the relatives are liable to pay tax in some circumstances. Also, assets held by children below the age of 18 years incur wealth tax. The individuals who transfer assets to relatives need to examine these provisions closely. The assets falling under the wealth tax purview need to be valued as per legal guidelines as on valuation date (31 March) every year. Some assets may also need to be valued by registered valuers.
How much do you pay? If your net wealth is more than `30 lakh, you will have to pay a tax of 1% on it. Net wealth is the value of all assets (chargeable to wealth tax) held by an individual on the valuation date, which is more than the value of all debts incurred with respect to these assets. The due date for filing wealth tax return is July 31.
Impact of DTC: The Direct Taxes Code will come into effect from 1 April 2012. Though the basic provisions remain unchanged, there are some amendments one needs to take a note of. The existing tax rate of 1% continues, while the threshold limit will be enhanced to `1 crore. However, the scope of taxable wealth is proposed to be broadened to include assets such as helicopters, archaeological collections, drawings, paintings, sculptures (or any art work) exceeding `50,000 in value.
Way forward: With the valuation date approaching, it is time to take stock of all your assets and related debts, and obtain a valuation. If your net wealth exceeds `30 lakh, it is mandatory to pay wealth tax and file a return. Non-payment of taxes will result in interest being levied. Even penal action may be taken if default continues.
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