As per the Direct Taxes Code Bill 2010 (the Code ) proposed to be effective from April 1, 2012, every person other than any non-profit organisation, shall be liable to pay wealth tax @1% on net wealth exceeding 1 crore.
Thus, every individual, HUF and company will be subject to wealth tax on the net wealth as on the valuation date i.e., March 31 of the financial year.
The net wealth shall be computed as per the formula prescribed under DTC.
The formula provides that the net wealth shall be the aggregate value of all the specified assets of the person on the date of valuation as reduced by the aggregate value of all the debts owed by the person, which have been incurred in relation to the specified assets.
The scope of assets has been widened to include many new assets.
It is proposed that the assets would include the following:
Any building or land appurtenant thereto; a farm house situated within 25 km from local limits of any municipality or municipal corporation or cantonment board; any urban land; motor car, yatch, boat, helicopter or aircraft other than those used for the business of running them on hire or as stock-in-trade ; jewellery , bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal other than those used as stock-in-trade ;
archaeological collections, drawings, paintings, sculptures or any other work of art; watch having value in excess of fifty thousand rupees; cash in hand in excess of 2 lakh in case of individuals and HUF; deposits in a bank located outside India in case of individual and HUF;
any interest in a foreign trust, etc, other than a foreign company; any equity or preferential shares held by a resident in a controlled foreign company as specified under the Code.
DTC vs Income TAx Act
It is pertinent to note that the scope of wealth tax has been widened in comparison with the Income Tax Act 1961 as a number of new assets have now been brought under the definition of assets.
It is important to take note of the exclusions/ exemptions in respect of investment/ assets, which will not be considered for the purposes of the wealth tax.
These include assets located outside India in respect of non-resident ; any one house or part of the house or one vacant plot of land not exceeding 500 sq mt, in the case of individuals and HUF; a house meant exclusively for the residential purposes allotted by a company to an employee ; any house for residential or commercial purposes, forming part of the stock-in-trade or used by the tax payer for the business purpose, a house that has been let-out for 300 days or more in a financial year; any house in the nature of commercial establishment or complexes.
DTC also provides that if the specified assets are held by certain relatives such as spouse or minor child, associate or associated entities of the person then, they shall be deemed to be belonging to such a person, if they fulfill certain conditions specified therein and shall be charged to wealth tax in the hands of the tax payer.