WEALTH TAX

1
WEALTH TAX

• Basically Wealth tax is chargeable to Net wealth
• Net wealth for this purpose is computed as
  follows
• Assets u/s. 2 (ea) -
• Deemed assets (u/s-4) -
• Total
• (-) Exempted assets (u/s-5) -
• Assets chargeable to wealth tax Balance
• (-) Debt owed u/s-2 (m) -
• Net Wealth Balance

2

• Net wealth is chargeable to wealth tax in the
  immediately following assessment year
• Only an individual, HUF a company is chargeable
  to wealth tax.
• U/S-45, no wealth tax is chargeable in respect of
  Net wealth of ------
• Any co. registered u/s-25 of the companies act
  1956
• Any co-operative society
• Any social club
• Any political party
• A mutual fund specified u/s-10(23D) of the Income
  tax act

3

• Net wealth in excess of Rs.15 lacs is charge-
  able to wealth tax _at_ 1.
• Companies registered u/s-25 of companies act,
  1956 are known as Widely Held Companies
• These are companies which are formed for the
  object of promoting
• Commerce, art, science, religion, charity or
• Any useful object, which apply such profits for
  promoting their objects prohibit the payment of
  dividend to their members
• All other companies are known as closely held co.

4
Assets 2(ea)

• Guest house, residential house or commercial
  building u/s 2 (ea) (i)
• Any building or land whether used for commercial
  or residential purposes or for the purpose of
  guest house
• A farm house situated within 25 k.m. from the
  local limits of any municipality or a cantonment
  board

5
Exceptions

• If following conditions are satisfied
• A house is not treated as Assets
• It is meant exclusively for residential purposes
• It is allotted by a company to an employee or an
  officer or a director who is in full time
  employment
• A house held as stock in trade
• A house used for own business or profession

6
Motor Car-u/s 2 (ea) ii

• For this purpose, motor car covers all motor
  vehicles other than heavy vehicles.
• Exceptions
• Motor car used by the assessee in the business of
  running them on hire
• Motor cars treated as stock in trade
• In case of leasing company motor car is an asset
• Where an assessee had admittedly pur5chased a
  car, merely because in view of some dispute with
  seller it has not been registered in the
  assessees name, the assessee cant plea that car
  is not includible in its taxable wealth

7
JEWELLERY, UTENSILSOF GOLD, SILVER etc. u/s-2
(ea) (iii)

• Any of such article made fully or partially of
  gold, silver, platinum or any other precious
  metal
• or
• Any alloy containing one or more of such precious
  metals
• are treated as
• assets

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EXCEPTIONS

1. Stock in trade not an asset
2. Gold deposit bonds are not asset

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BOATS and AIRCRAFTSu/s-2 (ea) (iv)

• Boats Aircrafts are treated as Assets
• Other than those used by the assessee for
  commercial purpose

10
URBAN LAND u/s-2 (ea) (v)

• An urban land is an asset whether it is
  agricultural land or non agricultural land.
• It refers to a land situated in following areas
• Land situated within municipality area
• Land situated outside municipality area
• (Not more than 8 k.m.)

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EXCEPTIONS

• On which construction of building is not
  permissible
• On which construction is done with the approval
  of authority
• Any unused land held by the assessee for
  industrial purposes for a period of 2 years from
  the date of its acquisition.
• Any land held by the assessee as stock in trade
  for a period of 10 years from the date of its
  acquisition.

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DEEMED ASSETS u/s-4

1. Assets transferred by one spouse to another
   u/s-4(1)-(a)(i)
2. Assets held by minor child
3. Assets transferred to a person or an association
   of persons.
4. Assets transferred under revocable transfers
5. Assets transferred to sons wife

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Continued..

• Assets transferred for the benefit of sons wife
• Interest of partner u/s-4 (1) (b)
• Conversion by an individual of his self acquired
  property into joint property
• Gifts by book entries
• Property held by a member of housing society

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ASSETS EXEMPT FROM TAX(u/s-5)

• Property held under a trust
• Interest in the property of HUF for a family
  member
• Residential building of a former ruler
• Former rulers jewellery
• Assets belonging to the Indian repatriates
• Repatriate (send back to domestic country)

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DEBT OWED (Due)u/s/-2 (m)

• The following two conditions should be satisfied
  to get deduction of debt owed.
• Only debt owed by the assessee on the valuation
  date is deductible.
• Debts should have been incurred in relation to
  these assets which are included in net wealth of
  the assessee

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VALUATION OF ASSETSU/S-7

• 1. Building (Part-B of schedule III)- Para 549.1
• Step 1 Find out Gross maintainable rent i.e.
• If property is let out
• Annual rent received or receivable by the owner
• Or
• Annual value of the property as assessed by local
  authority
• Whichever is higher

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If property is not let out

• Annual rent assessed by the local authority
• Or
• (In case property is situated outside the
  jurisdiction of local authority)
• The amount which the owner can reasonably be
  expected to receive as annual rent had such
  property been let.

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Step 2 Find out net maintainable rent

• It is calculated by deducting following from step
  1
• The amount of taxes charged by any local
  authority in respect of property
• And
• A sum equal to 15 of gross maintainable rent

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Step 3 CAPITALIZATION

• Capitalization can be done by multiplying the net
  maintainable rent by a decided factor as per
  follows
• In case of construction on lease hold land factor
  should be 12.5
• In case of the lease period of such land is 50
  years or more factor should be 10
• In case lease period is less than 50 years factor
  should be 8

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Step 4 ADD PREMIUM

• This step is to add premium to the step 3
• If the unbuilt area of the plot of land on which
  the property is built exceeds the specified area

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For calculating premium following terms should be
clear

• Aggregate area It refers to floor area (built/
  unbuilt)
• Unbuilt area It refers to that part of aggregate
  on which no building has been constructed

22
Specified area

• Where the property situated at
• Mumbai, Kolkata, Delhi or Chennai
• 60 of the aggregate area
• Where the property situated at Ahemdabad, Agra,
  Allahabad, Amritsar, Bangalore, Bhopal, Cochin,
  Hyderabad, Indore, Jabalpur, Jamshedpur, Kanpur,
  Lucknow, Ludhiana, Madurai, Nagpur, Patna, Pune,
  Salem, Sholapur, Surat, Tiruchirapalli,
  Trivandrum, Vadadora or varanasi 65 of the
  aggregate
• For any other place 70 if the aggregate area

23
Calculation of Premium

• Excess of unbuilt area over specified area
  Premium
• Not more than 5 of aggregate area Nil
• 5 to 10 of aggregate area 20
• 10 to 15 of aggregate area 30
• 15 to 20 of aggregate area 40
• More than 20 of aggregate area Rules of
  part-B
• Schedule III Not
  applicable

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Step 5 DEDUCT UNEARNED INCREMENT

• It is to deduct the amount of unearned increment
  payable
• If property is built on leasehold land any part
  of unearned increase in value is payable to the
  government or any authority at the time of
  transfer of the property, the value of such
  property will be reduced by the amount liable to
  be so paid.

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2. Valuation of self occupied property - u/s-7 (2)

• It is applicable if following conditions are
  satisfied.
• The assessee owns a house, being an independent
  residential unit
• It is used by the assessee exclusively for his
  residential purposes throughout 12 months
• If these conditions are satisfied, the assessee
  can adopt anyone of the following

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Option 1

• He can take the value of a house as determined
  under part B of schedule III on the valuation
  date relevant for the current assessment year.
• Option 2
• Alternatively he take value of the house, as
  determined under part B of schedule III on the
  first valuation date on which he became the owner
  or the valuation relevant for the assessment year
  1971-1972.
• which ever is later

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3. Valuation of Assets of BusinessPart D
schedule III

• Value of assets disclosed in Balance Sheet
• Step 1 Find out following
• Assets Value
• Depreciable assets W.D.V.
• Non depreciable assets Book value
• (other than stock in trade)
• Closing stock Value
  adopted for the
• purpose of
• income tax

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Step 2

• Add 20 the values given in above table
• Step 3
• Find out the value of individual asset as per the
  provisions of schedule III
• Step 4
• If the value of step 3 gt step 2 then the amount
  of step 3 will be taken as value
• Else the value of step 1 will be taken.

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Value of assets not disclosed in Balance Sheet

• The value of an asset not disclosed in the
  balance sheet shall be taken to be the value
  determined in accordance with the provisions of
  schedule III as applicable to that asset.

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4. VALUATION OF INTEREST IN FIRM OR ASSOCIATION
OF PERSON

• First of all determine the net wealth of the
  firm. (ignore the section-5)
• This portion of net wealth, up-to the capital of
  the firm is allocated among the partners in the
  proportion of their contribution.
• The rest is allocated among partners according to
  the agreement of the partnership for distribution
  of assets in dissolution or as per sharing ratio.

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5. VALUE OF LIFE INTEREST(Part F, schedule III)

• Step 1
• Find out average net annual income of the
  assessee desired for the life interest during 3
  years ending on the valuation date.
• Step 2
• Allow maximum 5 as collection charges.

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• Step 3 Average net annual income shall be
  multiplied by multiplier i.e.
• 1/(pd)-1
• Where,
• p Annual premium for a whole life insurance
  without profit on the life of the life of tenant
  for unit sum assured.
• d (i/1i) as i being rate of interest which is
  6.5
• Thus the multiplier depends upon the premium for
  unit sum assured and age of the person having
  life interest. The multiplier i.e.
• 1/(pd)-1,
• for different age may be checked through a pre
  calculated table

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Numerical Problem

• Mr. A aged 40 years. His father settled a house
  property in trust giving whole life interest to
  A.
• The income form the property for the years
  2005-06 to 2008-09 was 80000, 94000, 90000 and
  96000 respectively
• The expenses incurred each year were Rs. 4000,
  6000, 7500, and 18000 respectively.
• Calculate the value of life interest of A in the
  property so settled on the valuation date March
  2009, on the assumption that the value of house
  as per schedule III is (a) 25 lakhs, (b) 8 lakhs
  
• The multiplier at the age of 40 is 10.093

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Solution

• The average annual income for the period 2006-07
  to 2008-09
• Years 2006-07 2007-08 2008-09
• Income 94000 90000 96000
• (-) Exp (5) 4700 4500
  4800
• Net Income 89300 85500
  91200
• Average annual income is
• 893008550091200 266000
• 266000/388666.67
• Thus the value of life interest
• 88666.67 X 10.093 894912.70

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DECISION

• Part (a)
• The value of life interest of A in house will be
  taken as
• Rs. 894912.70 (as it is less than 16 lakh)
• Part (b)
• The value of life interest is Rs. 894912.70.
• However the value of the house in respect of
  which A has interest is Rs 8 lakh.
• Therefore value of life interest shall be taken
  as equal to Rs. 8 lakh (it cannot be more than
  value of the house)

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6. VALUATION OF JEWELLERY

• The value of jewellery shall be estimated to be
  the price which it would fetch if sold in the
  open market on the valuation date. The following
  points should be kept in view.
• If value of jewellery less than Rs. 5 lakh
• A statement in Form No. O-8A is required for
  return
• If value of jewellery more than Rs. 5 lakh
• A report of a registered valuer in Form No.
• O-8A is required to file a return.

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7. VALUATION OF OTHER ASSETS

• The valuation of an asset other than cash shall
  be estimated either by the
• assessing officer himself
• or
• by the valuation officer
• In both of these cases, the value shall be
  estimated to be the price which it would fetch if
  sold in open market, on the valuation date.

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If the asset is not saleable in open market

• The value shall be determined in accordance with
  guidelines or principles specified by the board
  from time to time by general or special order

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Return of wealth and assessment

• Every person is required to file with the wealth
  tax officer.
• A return of net wealth in Form BA
• If his net wealth or net wealth of any other
  person in respect of which he is assessable under
  act on the valuation date is of such amount as
  to render him liable to wealth tax.

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Return in response to a noticeu/s-17

• If any person, in the opinion of wealth tax
  officer, is assessable to tax, the wealth tax
  officer may, before the end of the relevant
  assessment year, issue a notice requiring him to
  furnish, a return of net wealth in prescribed
  form, within 30 days from the date of service of
  such notice.

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Return showing wealth tax below taxable limit
u/s-14 (2)

• A return other than the return furnished in
  response to a notice u/s-17.
• Which shows the net wealth below the taxable
  limit, therefore not chargeable to tax
• It will be deemed never to have been furnished

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Return after due date or amendment of return
u/s-15

• If any person has not furnished a return within
  time allowed under section 14 (1) or 16 (4) (i)
• OR
• Having furnished a return discovers any omission
  or any wrong statement.
• He may furnished a return or revised return, as
  the case may-be.
• Late return or revised return can be submitted
  within one year from the end of the assessment
  year or before completion of the assessment year
  whichever is earlier.

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ASSESSMENT

• Where wealth tax is payable on the basis of
  return to be furnished.
• The assessee is required to pay the tax before
  filling of the return.
• And such return is to be accompanied by the proof
  of such payment.

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REGULAR ASSESSMENT

• The Direct Tax Laws (amendment) Act, 1987 has
  amended the provisions regarding procedure for
  assessment. The new provisions have been brought
  on the lines of the income tax act.

45
RECTIFICATION

• In case wealth tax authority commits any mistake
  while passing any kind of order, to rectify that
  mistake the wealth tax authorities have following
  powers
• Amendment of any order.
• Any order to refund.
• The valuation officer may amend its orders.
• The joint Director, Commissioner, Commissioner
  (appeals), or Director may amend any of its
  order.
• The appellate tribunal may amend any of its
  order.

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APPEALS REVISIONS

• The appeal against the order of an assessing
  officer or revision of that order by commissioner
  of wealth tax is possible.
• Filling of appeal to commissioner u/s-23A (1) / 2
• Within 30 days from date of receipt of notice of
  demand or extended date.
• Hearing decision of the appeal by commissioner
  (appeals) u/s-23A (8A)
• Within a period of 1 year from the end of the
  financial year in which such appeal is filed,
  where it is possible.

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• Filling of appeal to tribunal u/s- 24 (1) / (2)
• Within 60 days from date of communication of
  order of deputy commissioner (appeals)/
  commissioner (appeals) or within extended time.
• Filling of cross objections with tribunal u/s- 24
  (2A)
• Within 30 days from date of receipt of notice or
  within extended time.
• Hearing decision of the appeal by tribunal u/s-
  24 (5A)
• Within a period of 4 years from the end of the
  financial year in which such appeal is filed,
  where it is possible

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• Filling application to commissioner for revision
  u/s- 25 (1) (c)
• Within 1 year from date of order sought to be
  revised.
• Revision of order by commissioner u/s- 25 (1) (d)
• Within 1 year from date of order sought to be
  revised.
• Revision by commissioner if considered
  pre-judicial to revenue u/s -25 (2) / (3)
• Within 2 years from the end of financial year in
  which order sought to be revised is passed.

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• Passing order by commissioner on application made
  by assessee for revision-u/s-25 (3A)
• Within 1 year from the end of the financial year
  in which application is made.
• Application to tribunal from orders of
  enhancement by chief commissioner or director
  general u/s 26 (1)
• Within 60 days from date of communication of
  order of Chief Commissioner or Director General.

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• Filling application to Tribunal for reference to
  High court u/s- 27 (1) / (2)
• Within 60 days from date of service of
  Tribunals order or within such further time no
  exceeding 30 days as allowed by Tribunal on
  sufficient cause
• Filling appeal to High court by the assessee or
  Chief commissioner or commissioner u/s- 27 A
• Within 120 days of the day upon which he is
  served with notice of an order u/s-24 or 25 or 35
  (1) (e)

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• Filling appeal to Supreme Court u/s-29
• If the assessee is not satisfied with the orders
  passed by High Court, they may file an appeal
  against the order of High court to the Supreme
  court, but with the consent of High Court.

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UNIT-4COMPLETE