Surprisingly, Wealth Tax is also known as ‘Trying to tax One’s Riches.’ A popular direct tax levied on idle assets that do not generate any kind of income, such as jewellery, real estate such as urban land, owned but the unrented house, and so on. Most of us would assume that it is levied on any asset that we own and that it can be avoided by transferring ownership to a spouse or children. However, any transfer of assets without adequate or appropriate consideration will be included in your net wealth for wealth taxation purposes.
In a country like India which has approximately 800 million poor people, wealth tax has been an electorally sensitive subject that frequently figures in the country’s ‘pro-poor’ and ‘pro-industry’ narratives. Many political parties have previously demanded that wealth tax rates be raised to 3% to make several urban and rural billionaires pay more taxes. Furthermore, experts believe that a wealth tax is especially important in today’s India, given the growing number of billionaires in the country as a result of various factors such as booming entrepreneurialism and foreign direct investment in specific sectors, among others.
In his Budget-2015, India’s Finance Minister abolished the wealth tax entirely, making it ineffective beginning with the fiscal year 2015-16. The wealthy and wealthy must bear the cost of compensation by paying an additional surcharge on their high-income earnings. Individuals with annual earnings of Rs.1 Crore and above must pay a 12 per cent surcharge. Firms with an annual income of Rs.10 Crores or more, on the other hand, must pay this increased surcharge of 12%.
Jewellery, bullion, and decorative items made of precious metals and precious or semi-precious stones, Furniture or utensils containing precious/semi-precious stones in any shape or form, Second property owned that is not rented for more than 300 days per year, Farmhouse within 25 kilometres of the local municipality’s limits, Land in the city with a land area greater than 500 square metres, Complexes or business establishments and having more than Rs.50,000/- in cash are the Assets which are taxable under the Wealth-tax.
Wealth tax is levied on individuals who meet the following eligibility criteria:
- He or she must be of Indian origin.
- He or she must be an Indian citizen.
But if you’re a non-resident Indian and plan to buy any asset in India with money brought from your resident country, the asset is exempt from wealth tax if purchased within a year of the date of your return or at any other time thereafter. Surprisingly, an NRI can claim this exemption for 7 years in a row from the date of his or her return to India.
Wealth tax was determined by calculating the market value of overall assets owned, regardless of whether or not they generated any returns. Individuals and Hindu Undivided Family members with a net worth of more than Rs. 30 lakhs were required to pay a wealth tax. Wealth tax was calculated based on the value of assets as of March 31 and would thus apply to any assets acquired at the end of a fiscal year. However, assets sold during the year are exempt from the wealth tax. Significantly, some of the country’s Double Taxation Avoidance Agreements (DTAAs) exempted taxpayers from wealth tax if they had already paid it in another country.
As a result of the repeal of the wealth tax, taxpayers re-examined their portfolios, with several having to consider investing in land in urban areas and other assets that were previously exempt from the wealth tax. According to the finance minister’s new proposal, if you own more than one plot in an urban area, you don’t have to pay wealth tax and should only pay capital gains tax upon sale. In addition, if the property has been held for 36 months, you can reduce your liability at the time of sale by investing in a residential house or bonds. Under the Gold Monetisation Scheme, taxpayers can also invest in gold.
With the repeal, it is now certain that rich people will be benefitted the most. Yet, it may lower the revenue which the government gets through a wealth tax.
By Siddhant Dutta