The document discusses wealth tax in India, including that it is a tax on assets owned by individuals, HUF, and companies. It defines taxable assets such as buildings, motor vehicles, jewelry, urban land, and cash. The document also covers topics like valuation of different asset types, exemptions, deemed ownership, and liability of wealth tax for a deceased person.

1. WEALTH TAX
By, Krishi Gokani
MCom, CS

2. ASSETS
Productive Unproductive
Income No Income
Income Tax Wealth Tax
No Wealth Tax

3. 1 - INTRODUCTION
 Wealth is a tax on “ASSETS”
 Wealth Tax is paid by
“INDIVIDUALS/HUF/COMPANIES”
(Trust is assessable as Individual)
(Firm is not assessable but Partners are
assessable for assets of the firm)
 Wealth Tax is charged on “Net Wealth”
Net Wealth = Total Assets - Total Debts

4. CONT….
 Taxable Limit
NET WEALTH TAX %
Upto 30,00,000/- 0%
Balance 1%
 There is no surcharge & education cess on Wealth Tax.
 Wealth Tax is paid on the Assets owned by the
Assessee on a Particular Date.
This date is 31st March of the Year Preceding the
Assessment Year.
This date is known as “Valuation Date”

5. CONT…..
 Assets must belong to the assessee on the last
moment of the Valuation Date.
 Example:
Gold of the assessee is ceased by Customs
Department on following dates:
 On 29/03/2012
 On 31/03/2012
 On 02/04/2012
What would be the case when the same were
seized but not confiscated.

6. DEFINITION OF ASSETS
 Asset means: B.M.J.U.C.Y.
B Building and Land Appurtenant to the Building
 Including:
1. Guest House
2. Farm House located within
25Kms from the limits of
local authority.

7.  Excluding:
o Property occupied by the assessee for his own
business/profession i.e. SOP(B)
e.g. Office building, factory, shops etc…
(Rabindranath Dhal)
o Residential Property let out for 300 days or more
i.e. LOP
o Commercial Complex.
e.g. malls etc
o Property held as stock in trade
e.g. unsold flats of construction companies

8. o Residential Property ----- Allotted by Company ------
to its whole-time Employee/Officer/Director ---------
whose gross annual salary is less than 5 lakhs.
Summary of Let Out Property
o Residential:
Exempt if LOP >= 300 days
o Commercial:
Single Unit: Taxable
Complex: Exempt

9. M Motor Car
 Excluding:
1. Held as Stock in Trade
2. Held for hiring business
J Jewellery
Jewellery includes: Precious Stones, article made
up of gold, silver or any other precious metal.
 Excluding:
1. Held as stock in trade.

10.  Motor Car: Additional Points
 Motor Car Leased by Leasing Company:
Asset in the Hands of Leasing Company
 Motor Car for Hire Purchase:
Asset in the Hands of Hire Purchaser
 Busses & Trucks:
Not a Motor Car
 Jeeps & Jonga:
Motor Car
 Delivery Vans, Ambuances, 2 Wheeler & 3
Wheelers:
Not Motor Cars

11. U Urban Land
(Land within 8kms from limit of local authority)
 Excluding:
1. Land on which construction is not allowed.
2. Land on which building is constructed with the
permission of appropriate authority.
3. Land held as stock in trade (exempt for 10 years
from the date of purchase)
4. Unused land held for industrial purpose
(exempt for 2 years from the date of purchase)

12.  Cash in Hand
C
 Individual/HUF
o Upto 50,000/- : Exempt
o Balance: Taxable
 Companies
o Recorded Amount: Exempt
o Unrecorded Amount: Taxable

13. Yachts, Boats & Aircrafts
Y
 Excluding:
1. Held for commercial purpose
2. Held for stock in Trade
Note:
Ships cannot be treated as Yachts or Boats
Helicopter can be treated as Aircrafts

14. SECTION 45:
 Assets held by following persons are exempt
from Wealth Tax.
(Co/Co/Po/So/Mu)
1. Companies Registered u/s 25 of Companies
Act,1956.
2. Co-operative Society
3. Political Party
4. Social Club
5. Mutual Funds

15. EXEMPT ASSETS
 Assets for charitable/religious purpose.
Applicable only for assets used for the above
purpose in India.
(Nizam’s Pilgrimage Money Trust)
(Gangabai Charaties)
 One Palace of an Ex – Ruler.
Exempt only if it is declared as his official
residence

16.  Jewellery of Ex – Ruler.
Conditions:
1. Recognized as Heirloom by CG
2. Should not be taken outside India except for the
purpose and period as approved by CBDT
3. It should substantially remain in its original shape
4. Reasonable facility for inspection should be given
to the officials of CG.

17.  Co Parcenary Interest
Share of member in Net Wealth of HUF shall be
exempt. (As it will be taxed in the hands of HUF)
 One House or Plot
Only for Individual and HUF
Either one House or one Plot (upto 500 sq mts)

18.  Assets held by Indian Repatriate:
 Following Assets held by Indian repatriate are exempt
for 7 consecutive years:
1. Money brought in India from abroad
2. Assets brought in India from abroad
3. Balance in NRE Account
4. Assets purchased out of money brought in India and
balance in NRE Account.
5. Assets purchased in India within one year before the
date of his arrival.

19. DEEMED ASSETS
 In the following cases, the assessee is liable to pay
wealth tax on the assets owned by other person
o Transfer for Inadequate Considerations
(a) Transfer to spouse
(b) Transfer to any other persons for the benefit of spouse
(c) Transfer to sons wife
(d) Transfer to any other person for the benefit of sons
wife
(e) Transfer to HUF

20.  Important Case: M.G. Kollanfulum
When Properties were transferred u/s 4, then it is not
necessary that the properties concerned should have
been an Asset within the definition of Asset.
 Husband sells shares to Wife for inadequate
consideration on 01.08.2011. Wife slls the shares &
buys a House Property of its sale proceeds on
30.03.2012. Hence HP is Taxable in the hands of
Husband.
 Suppose in above e.g. HP would be sold and Shares
would have been purchased, what would be the case?
 Indirect Transfer:
Husband sells HP to Wife who in turn sells to D.I.L.
Who will be taxed?

21. o Assets held by minor
Exceptions:
(a) Assets purchased out of Income arising to him by
application of his Skills, Talent or Manual Labor
(b) Assets held by handicapped children
(c) Assets held by minor married daughter
o Share in the Net Wealth of Partnership Firm
o Building possessed but not owned
o Assets acquired by way of lease
(lease period > 12 yrs & Renewable after
minimum 1 year)

22. VALUATION OF ASSETS
Assets are valued as per rules given in
SCHEDULE III of Wealth Tax Act, 1957
B Capitalized NMR
M Fair Market Value
J Fair Market Value
U Fair Market Value
C Amount of Cash
Y Fair Market Value

23. VALUATION OF BUILDING
Valuation of Building Amount
Capitalized NMR (Note 1) XXX
Cost of Acquisition and Improvement (Note 2) XXX
(Whichever is Higher)
Add: Adjustment for unbuilt area (Note 3) XXX
Less: Adjustment for unearned increase XXX
(Note 4)
Taxable Value XXX

24. Note 1: Capitalized NMR
= NMR * Capitalization Factor
Capitalization factor (CF):
Building Constructed on: CF
 Freehold Land 12.50
Leasehold Land
• Remaining Lease >= 50 Years 10.00
•Remaining Lease < 50 Years 8.00

25. Net Maintainable Rent:
Particulars Rs.
Gross Maintainable Rent (GMR) XXX
Less: 15% of GMR XXX
Less: Municipal Taxes XXX
Net Maintainable Rent (NMR) XXX
Gross Maintainable Rent:
Particulars Rs.
Municipal Value (always given) XXX
Actual Rent (next slide) XXX
(whichever is Higher) XXX
GMR

26. Actual Rent:
Particulars Rs
Annual Rent: (Always 12 Mts) XXX
Add: Benefits from Tenant (MRIP2)
Municipal taxes paid by tenant XXX
Repairs paid by tenant (Annual Rent * 1/9) XXX
Interest Benefits (Deposit Amount * {15% - Actual rate}) XXX
Premium Charged (Premium amt/period of tenancy) XXX
Perquisites/Benefits XXX
Actual Rent XXX

27. Note 2: Cost of Acquisition and Improvement
Cost of Acqusition is to be taken into account only
for the properties purchased after 31/03/1974.
For properties purchased before 31/03/1974, Cost
is to be IGNORED. Thus Taxable amount will be
Capitalized NMR
For any one Low Cost SOP(R), Cost of Acqusition
is to be ignored.
(Low cost: Metro cities: Rs. 50 L & Others Rs. 25L)

28. Note 3: Adjustment for un built area
If actual un built area is more than allowed unbuilt
area then the value of property should be increased
by the following %
Excess Un Built Area Addition
(Actual – Allowed)
Upto 5% Nil
> 5% upto 10% 20%
>10% upto 15% 30%
>15% upto 20% 40%
>20% N.A.

29. Note 4: Adjustment for un earned increase:
Amount Payable to Govt. =
(Value of land as on valuation date – Premium Paid)*
xx%
*** Deduction on account of unearned increase
cannot exceed 50% of the value of property (after
adj. for unbuilt area)
Note 5: Advance Rent
If advance rent give is more than 3 months rent, then
such adv rent is treated like Deposit

30. Note 6: Cases where NMR method is not
applicable:
For such cases Taxable Value = FMV
1. If the excess un built area is more than 20%
2. If the property is constructed on leasehold land,
the remaining period is upto 15 Yrs. (lease not
renewable)
3. If the A.O. is of opinion NMR method is not
practicable in a case. (prior approval of JC)

31. VALUATION OF JEWELLERY
Taxable value of jewellery = FMV on valuation date
Along with return of net worth the assessee should
submit following Forms:
(a) A statement in prescribed form i.e.
FORM – O-8 A (If the value of jewellery is upto 5
lakhs)
(b) Report of Registered Valuer in FORM – O -8
(if value of jewellery is more than 5 lakhs)

32. VALUATION OF BUSINESS ASSETS
If assessee carries on business and maintains
regular books of accounts, then Schedule III value
should be ignored.
Taxable Value = Book Value/WDV
***If the schedule III value is more than book
value/WDV and the difference is more than 20% of
Book Value/WDV, then:
Taxable Value = Schedule III value

33. VALUATION OF SHARE IN PARTNERSHIP
FIRM
In case of partnership firm, partners are liable to pay
tax on their respective share. Share of each partner
is calculated as follows:
o Compute the Net Wealth of Partnership Firm (without
giving effect to exemption u/s 5)
o Distribute the net wealth of partnership firm as follows:
a) To the extent of Partners Capital: Capital Ratio
b) Balance Net Worth: Dissolution Ratio (or PSR)
o Compute the Net Wealth of Individual Partners. (Add
personal assets to the share a deduct personal
liabilities)

34. KNOWLEDGE TEST
 Commercial property held as Stock in Trade
 Guest house in Rural Area
 Commercial Property let out for 340 days
 Farm house located 20kms away from mumbai
 Motor Car for office use
 Aircraft for office use
 Aircraft held by Kingfisher Airlines
 Diamonds
 Unused land held for Industrial Purpose (Purchase
date 14.07.08)
 Furniture made of Silver
 Furniture made of Costly Wood

35. LIABILITY OF WEALTH TAX OF DECEASED
PERSON
 When a person dies, his
executors/administrator/Legal Representative shall
pay Wealth Tax out of the assets of deceased (to
the extent the estate is capable of meeting the
charge)
 When a person dies without filing the wealth tax
return, the A.O shall make the Assessment and
determine the Net wealth and Tax payable. He shall
issue appropriate notice to the deceased as if he is
not died. The executors shall be called upon to
furnish details and pay the taxes.

36. IMP CASE: CWT V/S H.S. CHAUHAN
 Question of debate: Whether penalty can be levied on
the legal hairs if the Assessee dies before the A.O.
levies Penalty.
 Section 19(3): Sec provides that provisions of sec
14(filing of return), sec 15 (Revised return, signing of
return, Self Assessment) & sec 17(Income escaping
Assessment, Interest on late filing of return) shall apply
to the legal hairs as they would have applied to the
deceased.
 However it is to be noted that provision of levying
penalty is given in sec 18.
 Thus Interest can be levied for late filing but not penalty.