Problem on wealth Tax

Problem-1: Explain the taxability of the following in the net wealth computation of Mr. A
a) Gifts of jewellery made to wife Rs 60,000, Market value on valuation date is Rs 2, 00,000.
b) He gifted cash Rs. 2, 00,000 to his son’s wife without consideration, which she deposited in
bank.
c) Urban land transferred by him to his minor handicapped child.

d) A minor son of Mr. A receives income by acting in films. Out of this income, he purchased a
Car and a residential house; value of these on valuation date is Rs 50 Lacs.
e) He transferred a house valued at Rs 20 Lacs to his married daughter but he has reserved the
right to live in that house for whole life

Problem-2: How would you treat the following items under the wealth tax Act?
(i) Mr. Gupta is a managing trustee of an educational society. The society is a public charitable
trust. The value of trust property is Rs 50 Lacs, which is held by Mr. Gupta in his name as
managing director.

(ii) Mr. G, an Indian repatriate came to India on 1st Oct’2007. The balance in his Non-Resident
External Account is Rs 10 Lacs on that day, out of which he purchased a car for Rs 4 Lacs.

(iii) Mr. X is a former ruler; his jewellery was recognized by Central Govt. as his heirloom in
1956.

(iv) Interest of Mr. Z in the HUF to which he is a member.

v) Mr. Shyam owns only one house valued at Rs. 12 Lacs, the house has been build on a land
area of 450 sq. meter

Problem-3: R, an Indian citizen has been residing in USA for several years, returned to India on
21.10.07with an intention of permanently residing here. Discuss his wealth tax liability in the
following cases:

a. He brought Rs.25,00,000 along with him and purchased a Mercedes car.

b. He had sent Rs, 40,00,000 to India on 5.11.06. This money was utilized for purchase of gold
on 28.11.06.

c. He sent Rs. 20,00,000 on 5.08.06 and purchased a residential plot of land in Delhi on 16.08.06.
What would be the answer if the plot was purchased on 15.11.06?

d. He sent Rs.50,00,000 on 5.07.06 and purchased a residential house in Delhi on 17.07.06.

e. On his return he brought with him diamond jewellery worth Rs. 22,00,000.

f. He had sent Rs. 31,00,000 on 4.11.06 which was deposited in his Non Resident External
Account with a Bank. Out of this Rs. 20,00,000 was withdrawn from the bank for purchase of
urban land but he could not purchase the same till 31.03.08.

Problem-4: Mr. Gupta has the following assets and liabilities on the valuation date:

Compute his net wealth.

1 Residential House Rs. 40,00,000

2 Cars for personal use Rs.10,00,000
3 Jewellery Rs.16,00,000
4 Aircrafts and boats for personal use Rs.1,30,00,000
5 Farm house 15 Kms away from local limits of Mumbai Rs.12,00,000
6 Cash in hand Rs.2,20,000
7 Shops given on rent Rs.12,00,000
8 Loan taken to purchase aircrafts Rs.50,00,000
9 Loan taken to purchase residential house Rs.22,00,000

Problem-5: Mr. A owns a house built on a lease hold kind (unexpired period of lease is 60
years) in Mumbai which is let out to a tenant for Rs. 1200 p.m. Other terms are:

• Tenant pays all repair expenses

• Tenant has paid Rs. 300000 in advance refundable at the time of vacating the house.

• Tenant has paid Rs. 100000 on premium for taking sub-lease of property for 5 years.

The annual value assessed by local authority is Rs. 240000 and municipal tax is 20000. The
tenant spent Rs. 15,000 on repairs of the house, difference between specified area and unbuilt
area is 4 %. Compute value of house assuming. Cost of acquisition is Rs. 10, 00,000

Answer: value of house Rs.1840000

Problem-6: A Ltd. is the owner of a house, which is constructed on a leasehold land. Unexpired
period of lease is 40 years. It has been let out this house to X for Rs.21000 p.m, other terms one.

(i) X is to pay 3/4th of municipal taxes and bear the cost of repairs.

(ii) X paid interest free advance of Rs. 1 lac. Refundable at the time of
vacating the house. The annual value assessed by local authority is Rs. 2 Lacs and taxes
levied are Rs. 24000, X spent Rs. 10000 on the repairs of the house.

The difference between the ‘unbuilt area’ and ‘specified area’ is 8% of the
aggregate area. Find value of house assuming cost of the building including land
was Rs. 1200000. A Ltd. had paid Rs. 5 lakh to DDA for lease of land but now
value of land is Rs.5 lakh, DDA charges 50% of un-earned increase on transfer of
house.

Answer: Value of house = 1583680

Problem-7: Mr. Mahesh is the owner of a house, which is constructed on freehold land. He has
let out this house to a tenant for Rs.5800 p.m., The other terms are as under:-

(i) Tenant will pay 3/4th the municipal taxes and bear the cost of repair

(ii) He will pay Rs.50, 000 as interest free deposit. The annual value as assessed by the local
authority is Rs.100, 000 and taxes levied Rs. 12,000.

(iii) Tenant spent Rs.16000 on the repairs of the hose.

(iv) The difference between un-built and specified area is 8% of the aggregate area.

Find out the value of the house for wealth tax purposes if cost of building including land in 1980
was Rs. 500000.

ANSWER Value of the house=Rs.8, 76,000