1. Wealth Tax
Earlier in 1957, the Government of India decided to introduce a Wealth Tax Act upon the richer strategy of society. But since the application of this tax was a bit more expensive than the benefits derived, the act was abolished in the union budget of 2015.
2. What is Wealth tax?
Wealth Tax Act has been replaced by a surcharge of 12% upon the income of high and rich society, Hindu Undivided Family (HUFs) and corporates. High networth individuals (HNIs) are persons with incomes of ₹1 crore or higher and companies which earn ₹10 crores or higher.
3. Wealth Tax in India
As per the Wealth Tax Act, 1957, an individual, a Hindu Undivided Family(HUF) or a company had to pay a wealth tax of 1% on earnings of over ₹30 lakh pa. This tax was a levy of tax on the net wealth (the aggregate value of assets minus the aggregate value of debts or liabilities as on the valuation date) of extremely wealthy individuals, companies or HUFs at the end of any particular fiscal year.
The main purpose of wealth tax was to increase the amount of direct taxes which is being collected from rich people in order to reduce the inequality in wealth across India and ensure that these people made a larger contribution towards the revenue of the country.
4. How is Income Tax and Wealth Tax different from each other?
The most important and main difference between Income Tax and Wealth Tax is that Income tax is payable on the Income earned in a particular financial year while wealth tax is a tax payable on anything which is purchased with money once you have paid your Income tax.
5. Why has Wealth Tax been abolished?
The following are the reasons why Wealth Tax got abolished in India:
- Easier and simple taxation system: By abolishing the wealth tax, the government has ultimately reduced the scope of some taxpayers taking undue advantage of the loopholes in the wealth tax act.
- Simple tax procedures: The Indian government wanted to simplify the procedure for easier tracking and enhancing transparency with respect to complex nature of Indian tax laws.
- Expensive allocation: The cost of collecting the wealth tax was much higher compared to benefits. Moreover, wealth tax does not make for a major part of collection of direct taxes in India.
- Increased revenue: By abolishing the wealth tax and replacing it with additional surcharge, the government has collected revenue worth over ₹9000 crore since 2015.
- Administrative burden: Every taxpayers has to value their assets as per the Wealth Tax Rules to calculate their net wealth. For certain assets such as jewelry, taxpayers had to obtain a valuation report from a registered valuer which in turn ultimately increased the process of tax collection.
- Curb widening of the tax base: The Indian Government wants to bring more persons under its tax net, given that individuals who file income tax returns outnumbers those who file wealth tax returns.
- Improved reporting: As per surcharge system of collection, the taxpayers will have to do some additional reporting of information in their Income tax returns in terms of listing out their assets and liabilities.
- Prevents leakage: Details about the assets submitted by the taxpayer in the income tax returns will ultimately help officials correlate declared wealth with the declared Income. Therefore, tax officers are able to ensure that there is no tax ‘leakage’.
6. Impacts of Wealth Tax
As mentioned earlier, wealth tax has been replaced with a levy of additional surcharge. The surcharge would only be applicable to the following – Individuals, HUFs, Firms, Cooperative Societies and local authorities with the income exceeding ₹1 crore.
For any individual with an annual income of more than ₹1 crore and firms with an Income exceeding ₹10 crore, the surcharge applicable is 15% for FY 2018-19. For Corporates earning an annual taxable Income between ₹1 crore to ₹10 crore, the surcharge applicable is 7% and 12% for taxable Income more than 10 cr.
7. Wealth Tax Rules
Basically, wealth tax rules take the resident status of an individual into consideration. All residents of India are subjected to pay wealth tax on the assets they own in India along with their global assets. With the case of NRI’s and foreigners, they have to pay wealth tax towards the assets they own in India only.
8. The definition of ‘assets’ has been defined by the Wealth Tax Act as:
Any building/ land/ apartment, whether used for any residential or commercial purposes or for maintaining any guest house or otherwise. It also includes any farm house situated within 25 kilometers from local limits of any municipality or a Cantonment Board. But there exist a few exceptions when it comes to buildings, land or apartments, which are not included in this category as per the law.
Motor cars (other than those used by the Taxpayers in the business of running them on hire or held as stock-in-trade).
Jewelry, bullion, furniture, utensils or any other article made fully or partly of gold, silver, Platinum or any other precious metal or any alloy containing one or more of such precious metals. This category, basically , is not inclusive of any of the above items held as stock-in-trade by the taxpayer.
Yachts, boats and aircrafts (except for those used by the taxpayer for commercial purposes).
The Wealth Tax Act, 1957 was an Act of the Parliament of India which provides for the imposing of wealth tax on an individual, Hindu Undivided Family or company. The wealth tax was imposed on the net wealth owned by a person on a valuation date, i.e., 31st March of every year. The Act applies to the whole of India.