Skip to main content

Wealth tax - When does it apply ?

Tax Saving Mutual Funds Online

Current open Infra Bond Application form

 

Though most of us tend to focus on income-tax, there is another direct tax all of us are subject to -- the wealth tax. In fact, prior to 1998, another direct tax, the gift tax was also applicable, but it was discontinued. Then, the Finance Act, 2004, brought in what was effectively a gift tax through the back door, by way of income tax. The only difference was that the original gift tax was payable by the donor and the new income tax on gifts is payable by the recipient.

This gift-based tax shall be discussed in detail in a later article. This time, we shall examine the largely ignored wealth tax. Essentially, wealth tax is levied on the benefits derived from asset ownership. The tax is to be paid on the market value of the same assets year after year, whether or not these yield any income. Every individual and Hindu Undivided Family whose net wealth (assets less liabilities incurred to acquire the assets) as on March 31 exceeds 30 lakh is required to pay wealth tax at one per cent of the amount that exceeds `30 lakh.

Note again that wealth tax is payable on the net wealth held as on March 31 of each year. This means it will be applicable on the asset even this was purchased only towards the end of the year. Conversely, those assets sold during the year and, consequently, not held as on March 31, will escape the levy of wealth tax.

The good news is that wealth tax is payable only on what are termed unproductive assets. Consequently assets such as shares, securities, mutual funds and fixed deposits, the productive assets, are exempted.

Though there is a long list of items such as yachts, boats, aircraft, etc, that are subject to wealth tax, for our purposes we shall only consider assets that are commonly owned such as real estate, jewellery and cars.

House property

Just like in income tax law, one house is exempt from wealth tax. In other words, ownership of more than one house will attract wealth tax liability on the second house onwards. There are three exceptions. If a property is used for conduct of business or a profession or if it forms a part of stock-in-trade or has been rented out for at least 300 days in the year, wealth tax is not applicable on such property.

A friend of mine has two houses, one in Mumbai and the other at his native place in Chennai. His parents live in the Chennai property, which is valued at over `50 lakh. By way of tax planning, he has asked his parents to pay him a token rent of `4,500 per month, thereby escaping the wealth tax liability. The rental income will be taxable in his hands but is lesser than the wealth tax liability that would otherwise be payable. Of course, the rent paid by his parents is returned back to them at the end of the year by way of a gift, as gifts between relatives is tax-free.

If this arrangement isn't possible, the house with the higher valuation can be claimed as exempt, leaving the one with the lower valuation subject to wealth tax.

Also note that wealth tax is applicable on net wealth, after deducting any liabilities or debt owed to acquire the assets. Therefore, if any house subject to wealth tax has been purchased using housing finance, the value of the loan due is deductible while arriving at the figure of net wealth.

Cars

The tax in this case would be applicable at the market price of the car. Exceptions are those used in a car-hire business. So, if you already own a car and intend to purchase another, such that the total value of your cars would go beyond `30 lakh, buy in the name of your spouse or any other family member, such that wealth is spread and the optimum benefit of the basic exemption of `30 lakh can be claimed.

Jewellery

In this case, these include ornaments made of gold, silver, platinum or any other precious metal and/or precious or semiprecious stones. Such items, even if sown into clothes or set into furniture, have to be considered for wealth tax purposes. Incidentally, cash in hand in excess of `50,000 is also subject to wealth tax.

If you find yourself liable for wealth tax, merely transferring the asset to your spouse will not help. Clubbing provisions similar to those applicable in income tax law are also applicable in the case of wealth tax. Therefore, any assets gifted to spouse, minor child or sons wife will be, notwithstanding the gift, deemed to belong to the taxpayer.

The writer is Director, Wonderland Consultants, a tax and financial planning firm. Contact at sandeep.shanbhag@gmail.com

The good news is that wealth taxis payable onlyon what are termed unproductive assets. Consequently assets such as shares, securities, mutual funds and fixed deposits, the productive assets, are exempted.

There will be tax incidence on a number of things such as cars, jewellery and paintings  

How

|If there is a second house which is not being used for business, is stock-in-trade or rented for 300 days a year |If the price of the car/s exceeds ~30 lakh for one individual |If one owns ornaments of gold, silver and other precious metals, even if the sown into clothes or used as setting in furniture |Cash balance in excess of ~50,000

Solutions

|Renting out the second property, if necessary, for a small rental |If there are two cars, buy the second one in wife's name

 

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

 

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

 

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

 

These Application Forms can be used for buying regular mutual funds also

 

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. HDFC TaxSaver
  2. ICICI Prudential Tax Plan
  3. DSP BlackRock Tax Saver Fund
  4. Birla Sun Life Tax Relief '96
  5. Reliance Tax Saver (ELSS) Fund
  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

---------------------------------------------

Application form for Tax Saving Infrastructure Bond and more information

Current open Infra Bond Application form

 

Submit filled up application    Collection canter near you

 

Popular posts from this blog

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

How you can beat Inflation

You can do precious little to stop prices of products and services from rising. But you can insulate yourself against this rise by either cutting down on your consumption or saving enough to be able to afford these products and services in future. Investors saving for long-term goals such as their children's education and marriage and their own retirement should remember that a 100% debt based portfolio will never be able to beat inflation. In the past 10 years, the CPI for urban consumers has risen by an average 8.07%.This means investments that offer less than 8% returns have not been very lucrative. Eroded by inflation , the purchasing power of the maturity corpus is less than that of the principal at the time of investment (see graphic).   The only way to beat the incessant march of inflation is to invest in instruments that offer higher returns. Stocks and equity-oriented funds have a good long-term record of beating inflation. In the past 10 years, equity funds have delive...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now