No wealth tax from assessment year 2016-17 confusions prevails
July, 06th 2016
Confusions are prevailing in mind of many and queries are received about liability for wealth tax for assessment year 2016-17 (valuation date 31.03.2016 previous year ended 31.03.2016).
As per my understanding, wealth tax is not payable from assessment year 2016 in view of amendment brought vide THE FINANCE ACT, 2015 w.e.f. 1st day of April, 2016. After amendment, the applicable charging provision ( from AY 1993-94 to 2015-16), that is sub-section (2) of section 3 of Wealth Tax Act, 1957 reads as follows:
[(2) Subject to the other provisions contained in this Act, there shall be charged for every assessment yearcommencing on and from the 1st day of April, 1993, [but before the 1st day of April, 2016] wealth-tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company, at the rate of one per cent of the amount by which the net wealth exceeds fifteen lakh rupees.]
Provided that in the case of every assessment year commencing on and from the 1st day of April, 2010, the provisions of this section shall have effect as if for the words "fifteen lakh rupees", the words "thirty lakh rupees" had been substituted.]
Assessment year has been defined in clause (d) of sub-section 2 as follows:
2. In this Act, unless the context otherwise requires,
(d) assessment year means a period of twelve months commencing on the 1st day of April, every year ;
Generally the valuation date is the last day of the previous year (Financial year). The definition is given in section 2 (q) as follows:
2. In this Act, unless the context otherwise requires,
(q) valuation date, in relation to any year for which an assessment is to be made under this Act, means the last day of the previous year as defined in [section 3] of the Income-tax Act, if an assessment were to be made under that Act for that year :
(ii) in the case of a person who is not an assessee within the meaning of the Income-tax Act, the valuation date for the purposes of this Act shall be the 31st day of March immediately preceding the assessment year ;
(ii) where an assessment is made in pursuance of section 19A, the valuation date shall be the same valuation date as would have been adopted in respect of the net wealth of the deceased if he were alive;
From the Income-tax Act,1961:
["Previous year" defined.
3. For the purposes of this Act, "previous year" means the financial year immediately preceding the assessment year:
Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.]”
We can illustrate the assessment year, valuation date and previous year, for example assessment year commences on 01.04.2015 for assessment year 2015-16 for which previous year ends on 31.03.2015 and the valuation date for purpose of wealth tax will be 31.03.2015.
For another example, assessment year commences on 01.04.2016 for assessment year 2016-17 for which previous year ends on 31.03.2016 and the valuation date for purpose of wealth tax will be 31.03.2016.
After amendment (supra.) wealth tax is applicable only to assessment years which begun before 01.04.2016 that is up to 31.03.2015 that is to say last assessment year is 2015-16 for the purpose of wealth tax.
Assessment year 2016-17 begins on 01.04.2016, and not before 01.04.2016, therefore, there will be no assessment under wealth tax Act for assessment year 2016-17.
Last year for wealth tax was assessment year 2015-16 for which valuation date was 31.03.2015.
Therefore, from assessment year 2016-17 there is no wealth tax liability.
From the Finance Bill 2015 and objects:
It is worth to mention the proposal in the Finance Bill 2015 and notes and memorandum in this regard. These are reproduced below:
THE FINANCE BILL, 2015
Amendment of Act 27 of 1957.
79. In section 3 of the Wealth-tax Act, 1957, in sub-section (2), with effect from the 1st day of April, 2016, after the words, figures and letters “from the 1st day of April, 1993”, the words, figures and letters “but before the 1st day of April, 2016” shall be inserted.
Notes on Clauses:
Clause 79 of the Bill seeks to amend section 3 of the Wealth tax Act relating to charge of wealth-tax.
The existing provisions contained in sub-section (2) of the aforesaid section provides that wealth-tax in respect of net wealth of every individual, Hindu undivided family and company is charged at the rate of one per cent. of the amount of taxable net wealth for the assessment year commencing on 1st day of April, 1993 and subsequent assessment years.
It is proposed to amend the said sub-section (2) so as to provide that wealth-tax shall not be charged in respect of assessment year commencing on or after 1st day of April, 2016.
This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent years.”
Request to readers and authorities:
Readers including tax authorities are requested to inform author, if they have any reason to differ from the views expressed by author in this write-up and conclusion that from Assessment year 2016-17 there is no wealth tax liability.
It is unfortunate that laws are drafted and amended in such manner that confusions are increased even on clearly spelt out intentions to withdraw wealth tax.
By: CA DEV KUMAR KOTHARI - July 5, 2016
Discussions to this article
There is no confusion at all. The issue is absolutely clear. Read the following:
Finance Bill 2015: Explanatory Statement
Abolition of levy of wealth-tax under Wealth-tax Act, 1957 Wealth-tax Act, 1957 (‘the WT Act’) was introduced w.e.f. 01.04.1957 on the recommendation of Prof. Nicholas Kaldor for achieving twin major objectives of reducing inequalities and helping the enforcement of Income-tax Act through cross checks. Accordingly, all the assets of the assessees were taken into account for computation of net-wealth. The levy of wealth-tax was thoroughly revised on the recommendation of Tax Reform Committee headed by Raja J. Chelliah vide Finance Act, 1992 with effect from 01.04.1993. The Chelliah Committee had recommended abolition of wealth-tax in respect of all items of wealth other than those which can be regarded as unproductive forms of wealth or other items whose possession could legitimately be discouraged in the social interest. Currently, wealth-tax is levied on an individual or HUF or company, if the net wealth of such person exceeds ₹ 30 lakh on the valuation date, i.e. last date of the previous year. For the purpose of computation of taxable net wealth, only few specified assets are taken into account. The actual collection from the levy of wealth-tax during the financial year 2011-12 was ₹ 788.67 crore and during the financial year 2012-13 was ₹ 844.12 crore only. The number of wealth-tax assessee was around 1.15 lakh in 2011-12. Although only a nominal amount of revenue is collected from the levy of wealth-tax, this levy creates a significant amount of compliance burden on the assessees as well as administrative burden on the department. This is because the assessees are required to value the assets as per the provisions of Wealth-tax Rules for computation of net wealth and for certain assets like jewellery, they are required to obtain valuation report from the registered valuer. Further, the assets which are specified for levy of wealth-tax, being unproductive, such as jewellery, luxury cars, etc. are difficult to be tracked and this gives an opportunity to the assessees to under report/under value the assets which are liable for wealth-tax. Due to this, the collection of wealth-tax over the years has not shown any significant growth and has only resulted into disproportionate compliance burden on the assessees and administrative burden on the department. It is, therefore, proposed to abolish the levy of wealth tax under the Wealth-tax Act, 1957 with effect from the 1st April, 2016. It is also proposed that the objective of taxing high net worth persons shall be achieved by levying a surcharge on tax payer earning higher income as levy of surcharge is easy to collect & monitor and also does not result into any compliance burden on the assessee and administrative burden on the department. The details regarding levy of enhanced surcharge on this account are given under the heading “Rates of Income-tax”. It is also proposed that information relating to assets which is currently required to be furnished in the wealth-tax return shall be captured by suitably modifying income-tax return. This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years. [Clause 79]