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Wealth tax floor for company housing likely to be doubled
December, 07th 2007
The urban development and power ministries have proposed raising the ceiling for calculation of wealth tax payable by employers. At present, an employer has to pay wealth tax on company houses leased to employees earning Rs 5 lakh and more per year. The ministries have proposed that with salaries growing by almost 15% in the past year, the wealth tax should kick in only for salaries of Rs 10 lakh and above.

The finance ministry is likely to consider the proposal as part of the budget package. The ceiling of gross annual salary of Rs 5 lakh was fixed in the Finance Act, 1999. Subsequent to that, the salaries of employees in public sector enterprises have gone up significantly due to implementation of pay commissions and increase in dearness allowance. This has resulted in substantial burden on companies, an official said.

Salaries in the private sector have also increased dramatically over the last few years. The average salary jump being offered today in order to attract talent ranges from 35 to 50%. In fact, higher jumps are seen in financial services, IT and ITeS sectors, ABC Consultants CEO Shiv Agrawal said.

The proposal, if it goes through, would not only offer tax relief to companies that lease out houses in townships but would also incentivise employers to provide company houses to more employees. Tax liability for companies that own huge, multiple townships are quite high.

Tax experts feel a revision in ceiling for wealth tax would positively impact revenue of companies. Over the years, increase in salaries have resulted in increased outgo for the companies in terms of wealth tax. If the move goes through, the net wealth tax liability of the companies would be reduced by a great extent, KPMG manager Pritam Choudhary said.

The government collected Rs 265 crore in wealth tax in 2006-07.
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