Wealth tax came into existence on 1st April 1957. It is termed as most significant direct tax. As per the wealth tax act, wealth tax is applicable to the following:
- An individual person
- A group of people who own a property
- A company or organization
- A Hindu undivided family (HUF)
- A representative or heir of a dead person
- Non corporative tax payer
Wealth tax is the most neglected child of the direct taxes family. However, 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. In extreme cases of willful default, a taxpayer may be punished with imprisonment ranging from six months to seven years.
The laxity on the part of the government has encouraged taxpayers to ignore their wealth tax liability. Though financial assets do not invite wealth tax, real estate and gold, two favourite investment options of the rich, are included. In the past 4-5 years, crores of rupees has flowed into real estate, while gold prices have more than doubled in the past three years.
However, this is not reflected in the wealth tax collection, which has grown at a tardy pace, to say the least. However, this could soon change. A committee has been formed which has sought stricter punishment for tax evasion. The panel wants the minimum imprisonment for income tax and wealth tax evasion to be three years.
Most investors in real estate have no idea about the t ax implication of buying a second property. A second house won't attract wealth tax only if it is rented out for at least 300 days in a year. It can be a double whammy for the owner if the house is lying vacant, for he will not only have to pay tax on the notional rental income, but the value of the house will be added to his net taxable wealth. This is why savvy investors prefer to put money in commercial real estate, which does not attract wealth tax.
An increased focus on wealth tax compliance can bring in significant revenue for the government. The best part is that there cannot be any political opposition to such a move because the law already exists. All that the government needs to do is invoke it more seriously, that's it.
However there is good news in store. The original DTC had proposed to raise the threshold of assets for wealth tax to 50 crore INR and reduce the tax to 0.25%. It had also sought to bring financial assets under the tax ambit. The revised DTC has not specified the limit, but has hinted that financial assets will bot be included and that the threshold limit needs to be raised.
Till that happens, make sure you pay your wealth tax and file the return to avoid a massive from the tax.
Quick facts about wealth tax
What is Taxable ?
Wealth tax is payable if the value of the following unproductive assets exceeds 30 lakh INR on the last day of the fiscal year.
- More than one property, if it is unoccupied
- Gold and ornaments
- Art and artefacts
- Luxury cars, watches, yachts and aircraft
- Over 50,000 INR in cash.
How much is taxable ?
- The tax is 1% of the value of the assets exceeding 30 lakh INR. For example: If the value of these assets adds up to 75 lakh INR, you have to pay 45,000 INR (1 % of 45 lakh) as wealth tax.
- There is no surcharge or cess on wealth tax
What is exempt from wealth tax ?
- Any one residential property. Taxpayer can choose whichever property he wants to exempt
- Commercial property
- Financial assets (stocks, bonds, Ulips, mutual fund, gold funds and bank balance)
- Any outstanding loan taken to purchase the asset on which wealth tax is payable.
Filing deadline and form to use
- Wealth tax return has to be filled by 31st July. If the assessee is liable for an audit, the last date of filling in 30th September
- You have to use the four-page Form BA for filing the return
- If you miss the last date, you can still file the return before the expiry of one year from the end of the assessment year
What is the penalty ?
- 1% interest for every month of delay
- Tax evasion invites penalty ranging from 100% to 500% of the evaded amount
- In extreme cases, the imprisonment ranging from six months to seven years, with fine, if the wealth tax exceeds 1 lakh INR