Wealth Tax

Dhaval Maheta

Definition
(ea) "assets", in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means---(i) any building or land appurtenant thereto hereinafter referred to as "house', whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty five kilometers from local limits of any municipality whether known as Municipality, Municipal Corporation or by any other name or a Cantonment Board, but does not include-

Definition
Exception 1: a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than five lakh rupees; Exception 2: any house for residential or commercial purposes which forms part of stockin-trade; Exception 3: any house which the assesse may occupy for the purposes of any business or profession carried on by him;

Definition
Exception 4: any residential property that has been let-out for a minimum period of three hundred days in the previous year; Exception 5: any property in the nature of commercial establishments or complexes.

Definition
(ii) motor cars (other than those used by the assessee in the business of running them on hire or as stock-in-trade); (iii) jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals: Provided that where any of the said assets is used by the assessee as stock-in-trade, such asset shall be deemed as excluded from the assets specified in this sub-clause;

Definition
(iv) yachts, boats and aircrafts (other than those used by the assessee for commercial purposes); (v) urban land; (vi) cash in hand, in excess of fifty thousand rupees, of individuals and Hindu undivided families and in the case of other persons any amount not recorded in the books of account.

Chargeability
Net Wealth in excess of Rs.30,00,000 is chargeable to wealth tax@1 per cent.

Assets Sec 2(ea)(i)

The following are treated as assets: 1) Any building or land appurtenant thereto used for commercial or residential purposes of for the purpose of guest house. 2) A farm house situated within 25 kilometers from the local limits of any municipality.

Assets
A residential house meant exclusively for: a) Residential purpose b) If it is allotted to an employee, or an officer or a director who is in whole time employment. c) The gross annual salary of such employee, officer or director is less than Rs.5,00,000.

Exception to assets
A house held in stock in trade. A house used for own business or profession. A residential property which is let out for a minimum period of 300 days in the previous year. A commercial complex.

Sec. 2(ea) (ii)

Except the following two, any other motor car is an asset: a) Motor cars used by the assessee in the business of running them on hire. b) Motor cars treated as stock in trade.

Sec. 2(ea) (iii)

If jewellery, bullion, utensils of gold, etc is used by an assessee as stock in trade, then such asset is not treated as assets.

Sec. 2(ea) (iv)

Yachts, boats and aircrafts are treated as assets.

Sec. 2(ea) (v)

1) 2) 3) 4) Urban land not treated as asset in the following circumstances: Land on which construction of building is not permissible under any law for the time being in force in the area in which such land is situated. Land occupied by any building which has been constructed with the approval of the appropriate authority. Any unused land held by the assessee for industrial purpose for a period of 2 years from the date of its acquisition by him. Any land held by the assessee as stock in trade for a period of 10 years from the date of its acquisition by him.

Sec. 2(ea) (vi)

Cash in hand on the last moment of the valuation date in excess of Rs.50,000.

 X an individual furnishes the following particulars of his assets and liabilities as on March 31, 2007: Residential house at New Delhi: 25 lakhs Residential house at Agra: 15 lakhs Plot of land comprising an area of 450 square meter at Mumbai: 60 lakhs House at New Delhi exclusively used for carrying on his business: 15 lakhs Commercial complex at Agra: 20 lakhs Residential house let out for 335 days: 10 lakhs Motor cars used in the business of running them on hire: 20 lakhs

 Shares in private limited companies: 25 lakhs Cash in hand: 3 lakhs Gold Jewellery: 12 lakhs Liabilities Loan borrowed for purchase of land at Mumbai: 20 lakhs Loan borrowed for purchased of shares in private limited companies: 10 lakhs Loan borrowed for purchase of gold jewellery: 6 lakhs

Residential house at New Delhi: 25 lakhs Residential house at Agra: 15 lakhs Plot of land is exempted as its area is less than 500 sq. meters under sec. 5(vi) Residential house is exempted as it is let out for 335 days which is more than 300 days. Cash in hand: 3,00,000 50,000 = 2,50,000 Gold Jewellery: 12 lakhs Gross wealth = 54,50,000 Less: Loan borrowed for the purchase of gold and jewellery: 6,00,000 Net Wealth: 48,50,000 Deduction: 30,00,000 Wealth tax @ 1%: 18,50,000(0.01) = Rs.18,500.

 X Ltd. is engaged in the construction of residential flats. For the valuation date march 31, 2007, it furnishes the following data and requests you to compute the taxable wealth: Land in urban area (construction not permitted as per municipal laws):Rs. 35,00,000 Motor cars (not owned but used on hire by the company): Rs. 7,00,000 Jewellery (investment): Rs. 15,00,000, Loan taken for purchasing the same: Rs. 10,00,000 Cash balance (as per books): Rs. 1,75,000. Bank balance: Rs. 2,50,000

 Guest House situated in a place which is 30 kms away from the local limits of the municipality: Rs. 6,00,000. Residential flats occupied by the managing director: Rs. 10,00,000. The managing director is on whole time appointment and is drawing remuneration of Rs. 2,00,000 per month. Residential house were let out on hire for 200 days: Rs. 8,00,000.

 Jewellery (investment): Rs. 15,00,000 Guest House situated in a place which is 30 kms away from the local limits of the municipality: Rs. 6,00,000. Residential flats occupied by the managing director: Rs. 10,00,000 (Gross annual salary is more than 5 lakh) Residential house were let out on hire for 200 days: Rs. 8,00,000. Gross wealth: 39,00,000 Less: Loan taken to purchase jewellery: 10 lakhs Net Wealth: 29 lakhs

 X Ltd. is engaged in the construction and sale of buildings. It has the following assets as on March 31, 2007. You are required to compute the net wealth of the company in respect of the assessment year 2007 08. Flats- residential ready for sale:200 lakhs Commercial properties ready for sale: 500 lakhs Guest house situated 30 km away from Delhi: 25 lakhs Two residential houses occupied by:

 * An officer having an annual salary of Rs. 4 lakh: 10 lakhs * An officer having an annual salary of Rs. 5 lakh: 15 lakhs Cars used for companys business: 20 lakhs Aircraft used by officers for business purposes: 400 lakhs Urban land held on which no building could be built due to dispute of title: 50 lakhs Cash in hand: 5 lakhs Cash in bank: 10 lakhs

 Guest house situated 30 km away from Delhi: 25 lakhs * An officer having an annual salary of Rs. 5 lakh: 15 lakhs Cars used for companys business: 20 lakhs Aircraft used by officers for business purposes: 400 lakhs

Hints for tax planning

As far as possible assets should be converted in business assets. If an assessee is having cash above Rs. 50,000 it should be deposited in the bank. Taxable assets should be purchased by loan. Let out your property and save wealth tax.