Wealth Tax Act As amended uptodate

1. WEALTH TAX
By,
Joseph Joy Puthussery
M.Com ACA.
Big Thanks to Krishi Gokani
MCom, CS

2. ASSETS
UnproductiveProductive
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 incurred to
purchase those assets

4. CONT….
 Taxable Limit
 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”
NET WEALTH TAX %
Upto 30,00,000/- 0%
Balance 1%

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:. J.U.C.Y. H.C
 Defined u/s 2ea
 JUCY High Court!! :-D

7. Jewellery
Jewellery includes: Precious Stones, article made
up of gold, silver or any other precious metal.
 Excluding:
1. Held as stock in trade.
2. Gold Deposit Bonds- issued under Gold Deposit
Scheme- notified by CG
J

8. Urban Land
Land within 8kms from limit of local
authority and has a population of min of
10,000
And chart!!!
U

10. Urban Land
 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)
5. Agricultural Land
U

11. Car
 Excluding:
1. Held as Stock in Trade
2. Held for hiring business
C

12.  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, Ambulances, 2 Wheeler & 3
Wheelers:
Not Motor Cars

13. Yachts, Boats & Aircrafts
 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
Y

14. House Property -Building and Land Appurtenant to
the Building
1. Guest House
2. Commercial building
3. Residential building
 Including:
1. Farm House located within
25Kms from the limits of
local authority.
H

15.  Excluding:
o Property occupied by the assessee for his own
business/profession i.e. SOP(B)
e.g. Office building, factory, shops etc…
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

16. o Residential Property ----- Allotted by Company ------to its
whole-time Employee/Officer/Director ---------whose gross
annual salary is less than 10 lakhs.
o Incomplete buildings- not an asset
Summary of Let Out Property
o Residential:
Exempt if LOP >= 300 days
o Commercial:
Single Unit: Taxable
Complex: Exempt

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

18. SECTION 6: SCOPE OF LIABILITY O WEALTH TAX
Person Resident Citizen Assets &
Liabilities In
India
Assets &
Liabilities
outside India
Individual
Co
HUF
Y
Y
NA
NA
Y Y
Individual
Co
HUF
N
Y
NA
NA
Y N
Individual Y/N N Y N
For companies and HUF citizenship is not applicable.

19. SECTION 45:
 Assets held by following persons are exempt from
Wealth Tax.
(Co/So/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

20. EXEMPT ASSETS- 5
 1. Assets for charitable/religious purpose.
Applicable only for assets used for the above
purpose in India.
 2. One Palace of an Ex – Ruler.
Exempt only if it is declared as his official residence
by CG
successor can’t enjoy the benefit

21.  3. 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.

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

23.  6. Assets held by Indian Repatriate: sec 6
 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 and 1 after his arrival.
5. Assets purchased in India within one year before the
date of his arrival out of 1 and 3

24. DEEMED ASSETS- SEC 4
 Individual must be the owner.
 Transfer without adequate consideration
 Asset must be held by the transferee on valuation date
 Special circumstance!!
 Asset t/d to spouse – not an asset under wealth tax on
the date of t/f but later on valuation date it is an asset –
included in the net wealth of assessee.
 E.g. A t/d to Mrs. A some shares( not an asset under
wealth tax). Mrs. A sold these and bought some jewellery
( asset under wealth tax). On valuation date, value of
jewellery will be included in the hands of individual.

25. 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
1. Transfer to spouse
2. Transfer to any other persons/AOP for the benefit of
spouse or individual
3. Transfer to sons wife
4. Transfer to any other person/AOP for the benefit of sons
wife

26. 5. 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
Included in whose wealth?
Marriage of parents subsists- parent whose net wealth
is more.
Other cases- who maintains the child.

27. 6. Share in the Net Wealth of Partnership Firm
7. Building possessed but not owned
a person is allowed to take possession of a building in
part performance of a contract- under T/f of Property
Act. Considered a deemed owner.
8. Assets acquired by way of lease
(lease period > 12 yrs & Renewable after minimum 1 year)
9. Revocable T/f-
assets held by person/ AOP- t/d other than irrevocable
t/f
Irrevocable T/f- not revocable for a period of 6 yrs or
during life time (WIM)

28. 10. T/f by Book entry
gift of money from one person to another is made by
book entries maintained by the person making the gift
or
by an individual or
HUF or
firm or
AOP/BOI
with whom or which he has business or other
relationship
Will be included in the hands of donor unless he proves
otherwise.

29. 11. Converted Property
Mr. A is a member of an HUF. He has a HP in Munnar
which he converts to his Family property through
impressing. ( act of throwing into common stock) this
property is called converted property.
on valuation date the value of this HP is included in the
Net wealth of Mr. A even if the asset is owned by HUF.
if under partition some of the part of the asset is rec by
Mrs. A, that will also be included in the hands of Mr. A.

30. 12. Impartible Estate
Impartible estate – property of HUF descending to
individual by a special law or custom.
holder- HUF
BUT it is the individual who is deemed as owner and is
taxed under wealth tax
13. House from Housing Coop. Soc
Mr. J is a member of Cochin Cooperative Housing
Society which has a housing scheme under which
buildings are allotted to members on monthly payment.
Mr. J is also allotted a house. He will be deemed as
owner of that building

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

32. VALUATION OF HOUSE PROPERTY
Valuation of Building Amount
Capitalized NMR (Note 1) XXX
Cost of Acquisition and Improvement (Note 2)
(Whichever is Higher if )
XXX
Add: Adjustment for Unbuilt area (Note 3) XXX
Less: Adjustment for Unearned increase (Note 4) XXX
Taxable Value XXX

33. VALUATION OF HOUSE PROPERTY
Gross it
Net it
Capitalise it
+ U
-U

34. Note 1: Capitalized NMR- rule 3
Value of HP = NMR * Capitalization Factor
Capitalization factor (CF):
Building Constructed on: CF
 Freehold Land 12.50
Leasehold Land
• Remaining Lease >= 50 Years 10.00
•Remaining Lease 15yrs < 50 Years 8.00
•Remaining Lease <15yrs Rule 8 says-
Rule 20- FMV

35. Net Maintainable Rent: rule 4
Particulars Rs.
Gross Maintainable Rent (GMR) XXX
Less: 15% of GMR XXX
Less: Municipal Taxes XXX
Net Maintainable Rent (NMR) XXX

36. Gross Maintainable Rent: Rule 5
LETOUT
WIH
Adj.
Annual
Rent
MRV
NOT LETOUT
Assessed to MV
Yes
GMR=
MV
No
GMR=WIL
FRV SRV

37. Adjusted Actual Rent Rs
Annual Rent: (Always 12 Months)@ XXX
Add: Benefits from Tenant (Mind blowing RAPO)
Municipal taxes paid by tenant XXX
Repairs paid by tenant (Annual Rent * 1/9)
Actual repairs irrelevant
XXX
Advance adjustment
If Advance Security deposit> 3 months rent then,
Interest=
(Deposit Amount * {15% - Actual rate paid })
XXX
Premium Charged (Premium amt/period of tenancy) XXX
Other perquisites/Benefits received from tenant XXX
Adjusted Annual Rent XXX

38. ANNUAL RENT @
 Property Let out through out the year= actual rent
rec or receivable
 Property let only for part of the year
 Increase the rent proportionately for 12 months
 E.g.
 1 HP rented for 6 months for 1,000/- 3 months for
1,500 and vacant for 2 months
 Annual Rent= 1000 X 6m + 1500 X 3m X 12m
 (6m+3m)
 = 30,000/-

39. Note 2: Cost of Acquisition and Improvement
 Cost of Acquisition + Cost of improvement
 is to be taken into account only for the properties purchased
after 31/03/1974.
 And
 Compare Capitalised Value Of Building and COA
 Take WIH as the value
 For properties purchased before 31/03/1974, Cost is to be
IGNORED. Thus Taxable amount will be Capitalized NMR
 For any one Low Cost Self Occupied Property (R),
 COA+ COI is to be ignored if purchased or constructed after
31/03/1974 AND
 (Low cost: Metro cities[CMDK]: Rs. 50 L &
 Others cities Rs. 25L)

40. UN BUILT AREA


41. 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
(Actual – Allowed)
Addition as % of CVOB/
COA+COI
Upto 5% Nil
> 5% upto 10% 20%
>10% upto 15% 30%
>15% upto 20% 40%
>20% Rule 8 says rule 20-FMV

42. Note 4: Adjustment for un earned increase:
Unearned increase?
Increase in value of asset without any effort by assessee
Value on valuation date – premium paid by tenant to Govt
31/03/2015 when he got it lease
From the value calculated till Un built area adjustment
Deduct the following:
Amt payable to authority xxx W
[ unearned increase X % payable to authority] I
OR
Value after UBA adj X 50% xxx L
adjustment only if HP is on leasehold land from authority

43. 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)

44. 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 – 8 A (If the value of jewellery is upto 5 lakhs)
(b) Report of Registered Valuer in FORM – 8
(if value of jewellery is more than 5 lakhs)
(c) If AO opines that VOJ in ROW < FMV by such % or amt
specified, he may refer to Valuation Officer. Then Value
determined by VO shall be its value.

45. VALUATION OF JEWELLERY

46. 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
Asset not disclosed in B/S
Taxable Value = Schedule III value

47. 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: Dissolution Ratio(or Profit Sh Ratio)
o Compute the Net Wealth of Individual Partners. (Add
personal assets to the share & deduct personal liabilities)
o What if Net wealth < capital?
o Capital – Net wealth = deficiency
o Divide in Profit sharing or dissolution ratio and deduct from
partner’s interest

48. VALUATION OF SHARE IN PARTNERSHIP FIRM
In case the net wealth of the firm or association computed
includes any assets located outside India
then to calculate the value of the interest of any partner in the
assets located in India shall be determined as below
Actual Value of interest in firm =
(Value of assets located in India –
debts in relation to the assets) X Value of int in firm
net wealth of the firm

49. VALUATION OF LIFE INTEREST
Life interest:
means interest of an assessee in an asset during the his life
time.
How computed?
Value of life interest = avg annual income X 1 -
p+d
Avg annual income= avg gross income – avg exp incurred
to earn the income
Avg expense= (original exp or avg gross income X 5%) WIL
p = annual premium for a whole life insurance without profit
for 1 unit of sum assured
d = i . i=6.5%
1+i

50. VALUATION OF LIFE INTEREST
Caution !!!
Value of life interest cannot exceed the value of asset.

51. 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 Bombay
 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