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CONTENTS
What is wealth tax Legal framework Charging of wealth tax What is net wealth Who is assessee Valuation date Deemed assets Debts owed by the assessee. Summary
Legal Framework
Wealth tax is charged under the provisions of WEALTH TAX ACT,1957 read with WEALTH TAX RULES, 1957
Contd.
Less: Debts incurred in relation to assets included above. Net Wealth Contd.
Who is an assessee[Sec.2(c) ]
Assessee means a person by whom wealth tax or any other sum of money (I.e. penalty, interest) is payable under this Act, and includes:
1. Building
1. Any building or land appurtenant thereto whether used for Residential purpose or Commercial purpose or for the purpose of maintaining a guest house or otherwise, including a Farm House situated within 25 kms from the local limits of the municipality BUT subject to the following exceptions
Contd.
Contd.
3. House used by the assessee for the purpose of his business or profession. 4. Any residential property that has been let out for a minimum period of 300 days in the previous year, 5. Any property in the nature of commercial establishment or complexes
3.
Jewellery, Bullion, Furniture, utensils, or any other article made (wholly or partly) of gold, silver or any precious metals
Meaning of commercial purpose (e.g. using for earning income or held as stock in trade.
5. Urban Land
Urban land means land situated in any area which is with in the jurisdiction of a municipality and which has a population of not less than 10,000 according to the preceding published census. Or In any area with in such distance, not being more than 8 km. From the local limits of any municipality or cantonment board , notified by the central government. But subject to the following exceptions:
6. Cash in Hand
In case of Individual and HUF: cash in hand in excess of Rs. 50,000, whether recorded in books of account or not. In case of Company: any cash not recorded in the books of account
Problem:
Determine whether following are assets or not under Sec.2(ea):
1.
to
spouse
If any asset has been transferred by an individual to his/her spouse, directly or indirectly without adequate consideration, then such asset shall be included in the net wealth of the transferor. EXCEPTION: If such asset has been transferred in connection with an agreement to live apart then such asset shall not be included in the net wealth of the transferor.
Contd.
The relationship of husband and wife must exist on both the dates, I.e, date of transfer and valuation date. Love and affection is a good consideration but not an adequate consideration.
However, the following assets shall not be included in the net wealth of parent and would be taxable in the hands of the minor only.
Contd.
Contd.
Assets held by a minor child suffering from any disability of the nature specified u/s 80U of Income Tax Act, Assets held by a minor married daughter. Assets acquired by a minor child out of the following income referred to in proviso to Section 64 (1A) of the Income Tax Act:
Income from manual work done by him, Income from activity involving application of his/her skill, talent or specialised knowledge or experience.
Contd.
It should be noted that the child must be minor on the valuation date , otherwise, clubbing provision shall not apply. Question: in which parents income the net wealth of the minor child will be clubbed?
contd.
If marriage subsist:
In the net wealth of that parent whose net wealth (excluding the assets of minor child) is greater.
and where any such assets are once included in the net wealth of either parent, they will not be included in the net wealth of other parent unless permitted by the assessing officer.
then such asset will be included in the net wealth of the transferor. Again the relationship of husband and wife must exist on the valuation date.
Contd.
It is be noted that relationship between individual (transferor) and daughter-in law must exist on both the date- date of transfer and valuation date
then such property is know as converted property. And the value of such converted property on the valuation date shall be included in the net wealth of the individual.
Then the value of such gift shall be included in the net wealth of the donor.
the assessee shall be deemed to be the owner of such building or part thereof.
Case-1
X gifts units of UTI to his wife on 21.10.05. The units were sold by Mrs.X on 04.01.07 and she purchased gold ornaments on 05.02.07 out of the sale proceeds of the units. Solve the case with justification.
Case-2
X gifts gold ornaments to his wife on 21.10.05. These gold ornaments were sold by Mrs.X on 04.01.07 and she purchased shares of RIL on 05.02.07 out of the sale proceeds of the gold ornaments. Solve the case
Case-3
X gifts gold ornaments to his wife on 21.10.05. Mrs.X further makes a gift of gold ornaments to her sister on 4.01.07. If these gold ornaments are destroyed by fire on 4.01.07, then what will be the situation? If these gold ornaments were gifted by Mrs. X to her daughter in law, then what will be the situation? Solve the case.
Summary
For charging Wealth Tax the following points should be kept in mind:
Wealth tax is chargeable only in case of three categories of persons, namely, individual, HUF, Company. Wealth tax is charged @ 1% on the net wealth exceeding Rs. 60,00,000. Net wealth of the assessee is to be computed as on the valuation date. For computing net wealth residential status and nationality of the assessee will be considered. Asset must be an asset within the meaning of Sec.2 (ea). Such asset must belong to the assessee, however, deemed asset under sec. 4 will also be considered. Such asset must be held by the assessee or the transferee under section 4 on the valuation date. For calculating net wealth exempt assets will not be considered. For calculating net wealth debts owed by the assessee on the valuation date will be considered.
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