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Wealth tax in India is a levy imposed by the government on individuals and Hindu Undivided Families (HUFs) with taxable assets exceeding specified limits. The Wealth Tax Act, 1957, as amended by the Finance Act, 2015, imposes a tax of 1% on the amount by which the aggregate value of taxable assets exceeds Rs.30 lakh. In this blog post, we will discuss who is eligible for wealth tax and provide an example to help illustrate how it works.
What is the Wealth Tax?
The wealth tax is a tax levied on an individual’s net worth. In India, the Wealth Tax Act was introduced in 1957 and repealed in 2015. It is basically for the section that is richer than a certain limit and eligible for a wealth tax. The Wealth Tax Act was created to make the wealthy pay their fair share of taxes.
In India, the eligible individuals are required to pay wealth tax on their net worth exceeding Rs. 30 lakhs (as of FY 2014-15). The rate of wealth tax is 1% of the net worth exceeding Rs. 30 lakhs.
Example of a Wealth Tax
Wealth tax is an example of a direct tax. A direct tax is a tax levied on an individual or entity directly by the government. The most common type of direct taxes is income taxes and property taxes. Wealth taxes are less common but are still used in some countries.
Who is Eligible for Wealth Tax?
An individual is eligible for wealth tax if their net worth exceeds Rs 30 lakhs (approximately US $44,000). Individuals, companies and HUFs are eligible for a wealth tax. The Wealth-tax Act has been amended from time to time and the latest amendment was in 2015.
What is the Purpose of a Wealth Tax?
The primary purpose of wealth tax is to generate revenue for the government. However, it also acts as a deterrent for people who hoard large amounts of wealth.
Wealth Tax Rules
An individual is eligible for wealth tax if his/her net worth exceeds Rs. 30 lakhs (as of FY 2012-13). Wealth tax is levied at the rate of 1% on the individual’s net worth exceeding Rs. 30 lakhs.
The following assets are included in an individual’s net worth for the purpose of wealth tax:
- Immovable property (other than agricultural land)
- Jewellery, bullion and works of art
- Yachts and aircrafts
- Urban land held for investment purposes
The Wealth Tax Act was amended in 2015 to provide for a deduction of up to Rs. 50 lakhs for certain eligible assets. These assets include:
- Equity shares in a company or units of equity-oriented mutual fund
- Debentures or bonds issued by a public sector company or a listed company
- Deposits in banks and post office savings schemes
Example of a Wealth Tax Calculation
Mr A has the following assets as of 31st March 2020:
- House property (net value) Rs. 60 lakhs
- Equity shares in listed companies Rs. 15 lakhs
- Deposits in banks Rs. 20 lakhs
- Gold bullion and jewellery Rs. 30 lakhs
The net worth of Mr. A is calculated as follows: Rs. 60 lakhs + Rs. 15 lakhs + Rs. 20 lakhs + Rs. 30 lakhs – Rs. 50 lakhs = Rs. 75 lakhs
The wealth tax liability of Mr A would be 1% of Rs. 75 lakhs, which works out to be Rs. 75,000/- for the financial year 2020-21.
Wealth tax is not levied on agricultural land or any other asset which is specifically exempt under the Wealth Tax Act.
Exemption from Wealth Tax
here are the assets that are left uncovered while calculating Wealth tax:
- Charitable Land
- Jewellery
- Financial assets including life insurance policies
- Personal effects such as books, furniture, cars (provided they are not used for business or commercial purposes)
- Residential house/flat (self-occupied not exceeding 50 sqr. metre in the area.
Conclusion
Wealth tax in India is a levy on the assets of individuals who are eligible for the tax. The Wealth Tax Act, which was enacted in 1957, provides for the imposition of wealth tax on individuals and companies. Wealth tax is levied at the rate of 1% on the net value of an individual’s assets, which includes property, jewellery, shares and other investments. The tax is imposed on the basis of the financial year and is payable on the 31st of March every year. Individuals who are eligible for wealth tax must file a return with the Income Tax Department. The return must be filed on or before the 30th of June every year.
