Wealth Tax Contents

• Deemed Assets/ Exemptions/Interest

• Penalty

• Rates of Gold & Silver

• Scheme /Scope/ Rates

• Valuation

1. Assessees liable to Wealth Tax (Section 3)

Wealth Tax is charged for every assessment year in the hands of individuals, HUFs and all companies (private as well as public) on the net wealth as on 31st March.

The following assessees are specifically excluded from the levy of Wealth Tax:

1. Company registered u/s. 25 of the Companies Act, 1956

2. Co-operative society

3. Social club

4. Political party

5. Mutual fund specified u/s. 10(23D) of the Income-tax Act.

2. Charge of Wealth Tax

Wealth tax is levied only on the value of those assets (including deemed assets but excluding exempt assets) as defined u/s. 2(ea) after deduction therefrom of the debts which areincurred in relation to such assets (Liability towards Wealth Tax is not an allowable debt from A.Y. 1993-94) (Circular No. 663 dt. 28-9-1993).

3. Assets shall mean

4. Scope (Sec. 6)

6. Deemed Assets : Sec. 4

1. The value of assets mentioned below shall be clubbed as provided here in under :

7. Specific Exemptions — Section 5

1. Any assets held by public charitable/religious trusts. Exemption however lost and trust property liable to tax in case of diversion of income/property of trust to specified persons or in case of investment in unapproved securities.

2.  Interest of a member in a HUF property,

3. Any one building used for the residence by a former ruler,

4. Any heirloom jewellery in the possession of a Ruler,

5. Assets brought within 1 year prior to return/at any time after return into India by a returning NRI for 7 successive A.Ys. after return to India. Balance in N.R.E. a/c. on date of return and assets purchased therefrom also exempt.

6. One house or part of a house (effective from A.Y. 1994-95) or a plot of land not exceeding 500 square metres (effective from A.Y. 1999-2000), belonging to an individual or a HUF.

8. Partition of HUF — Sections 20 and 20A

In case of HUF, if total partition takes place on valuation date itself, then for that assessment year, it will be assessed as if no such partition has taken place. Likewise, a partial partition in the H.U.F. effected after 31-12-1978 will not be recognised and H.U.F. will continue to be assessed as if no partition has taken place.

9. Interest for default in furnishing return — S. 17B

Mandatory interest is payable @ 1% for every month/part of a month from due date till date of furnishing of return or, as the case may be, date of completion of best-judgment assessment u/s. 16(5), on tax payable on net wealth determined on regular assessment. Levy of interest is not dependent upon reasonable cause for such a default. The mandatory interest is payable along with self-assessment tax before filing of the return of wealth.

10. Valuation of Assets — Section 7

Valuation of assets specified in S. 2(ea) other than cash are governed by provisions of S. 7(1). Value as on valuation date will be determined as per Schedule III of the W.T. Act.

A. Immovable Property — (Rules 3 to 8, Sch. III, Part B)

1. Determine gross maintainable rent (GMR) as follows:

1. If property is let out:
   Higher of:

   1. Annual rent received/receivable by the owner
   2. Annual value as assessed by local authority

2. If property is not let out:

Situated within jurisdiction of a local authority	Situated outside jurisdiction of a local authority
Annual rent assessed by the local authority	Amount owner can reasonably be expected to receive as annual rent had the property been let out.

2. Determine net maintainable rent (NMR) as follows:

Deduct the following from GMR:

a. taxes levied by any local authority in respect of property (deductible on accrual basis). This deduction is available even if taxes are to be borne by the tenant; and
b. 15% of GMR.
 

3. Capitalise NMR as follows:

   Property situated on		Multiply NMR by
   (a)	Freehold Land	12.5
   (b)	Leasehold Land (Unexpired period of lease is 50 years or more)	10
   (c)	Leasehold Land (Unexpired period of lease is less than 50 years)	8

    

   4.	Value	Exception
   Property acquired/constructed after 31-3-1974	Capitalised NMR as provided hereinafter or Actual Cost (including cost of improvement) whichever is higher.	For one house used wholly for residential purposes and cost thereof up to ` 50 lakhs (in Delhi, Kolkata, Mumbai & Chennai) or ` 25 lakhs (in other cities), the value is Capitalised N.M.R.
   Property acquired/constructed on or prior to 31-3-1974	Capitalised N.M.R.	None

B. Valuation of assets of business (Rule 14, Para D, Schedule 3)

1. In case accounts of the business are maintained regularly, value of assets as disclosed in the balance sheet shall be taken as follows:

ASSETS	VALUE TO BE TAKEN
a) Depreciable assets	Written down value
b) Non-depreciable assets	Book Value
c) Closing Stock	Value adopted for the purpose of income-tax

2. If value of any asset determined as per provisions of Schedule III exceeds value as per above table by more than 20%, then higher value shall be taken as value of the asset.

3. Value of assets not disclosed in balance sheet to be determined as per provisions of Schedule III.

4.  Value of following assets disclosed in balance sheet not to be taken into account.

   a. Advance tax paid under Income-tax Act.

   b. Bad debts allowed as deduction u/s. 36(1)(vii) of Income-tax Act.

   c. Asset in respect of which Wealth Tax is not payable.

   d. Debit balance in profit & loss account, or any other amount which does not represent value of any asset.

   e. Asset not really pertaining to the business.
    

5. Value of following liabilities disclosed in balance sheet not to be taken into account:

   a. Capital employed in the business other than attributable to borrowed money.

   b. Reserves by whatever name called.

   c. Any provision made for meeting any failure or contingent liability

   d. Liability not really pertaining to the business.

   e. Debt utilised for acquiring asset in respect of which Wealth Tax is not payable.

C. Jewellery : (Rule 18, Part G, Schedule III)

1. 1. For first Assessment Year:

1. Find out Fair Market Value (FMV) as on the valuation date and declare in Return.

2.  FMV = Price fetched if sold in open market.

3. If FMV does not exceed ` 5 lakhs, support Return by Statement in prescribed form. (O-8A)

4. If FMV exceeds ` 5 lakhs, support Return by Registered Valuer’s Report, in prescribed form. (O-8)
    

2. For subsequent four assessment years:

   1. Substitute price of gold, silver or its alloy obtaining on the respective valuation date.

   2. Add/Deduct value of new Purchases/Sales.

D. Value of interest in Firm or AOP (Rule 16, Part E, Schedule III)

1. Determine net wealth of the firm or AOP.

2. Allocation amongst partners/members.

E. Value of life interest (Rule 17, Part F, Schedule III)

1. Determine average net annual income (ANAI) derived from the life interest during three years ending on the valuation date. Expenses incurred on the collection of such income (subject to a maximum of 5% of average of annual gross income) shall be deducted.

2. Value of life interest = ANAI x [1 / (P+D) – 1]
   Where,
   P = Annual premium for a whole life insurance without profit on the life of the tenant for unit sum assured as specified in the Appendix to Schedule III.
   D = 6.5/106.5

11. Time limit for issuance of Notice for re-opening of assessment

Time limit for issuance of notice under section 17(1A), extended up to 16 years, where any net wealth in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. The amendment will take effect from 1st July, 2012.

12. Penalty

13. Rates of Gold and Silver

Conversion Table