What is your wealth tax liability?

In a way,all the figures of basic exemption of Rs 15 lakh,Rs 30 lakh and Rs 50 crore are correct. However,you need to know the exact legal position. For your valuation date 31st March,2009,i.e.,wealth tax assessment year 2009-10,the basic exemption is Rs 15 lakh. For your valuation date 31st March,2010,the basic exemption has been raised to Rs 30 lakh. Under the proposed Direct Tax Code 2009,it is proposed that the basic exemption be raised to Rs 50 crore.

As you are aware,over the past several years the incidence of wealth tax has been considerably reduced. It is now confined largely to unproductive assets like vacant plots of land,vacant houses,jewellery,motor cars,and cash in excess of Rs 50,000. In other words,wealth tax is not levied on all your productive assets like shares of companies,bank and company deposits,bonds and debentures,mutual fund units,national savings certificates,etc.

Effectively,therefore,wealth tax is now levied only on:

i) A house,with the first one being exempt;

ii) Vacant plots of land (other than agricultural land);

iii) Silver,gold,precious stones,jewellery,etc;

iv) Motor car (other than for business of hire); and

v) Cash in excess of Rs 50,000.

Wealth tax is levied on individuals,HUFs (Hindu United Families) and companies at a flat rate of 1 per cent on wealth in excess of the basic amount of Rs 15 lakh for 31st March,2009 and Rs 30 lakh for 31st March,2010. No surcharge is levied on wealth tax.

You must appreciate that wealth tax is payable on the assets that you own. Thus,the charge is on ownership of assets. Ownership of the asset may have been acquired by you either through purchase,or it may have been gifted to you,or you may have got it through inheritance. Whether you paid a cost or not for acquisition is of no consequence. What is important is the market value of the asset and that it is owned by you. If you stay in a rented flat,wealth tax is paid not by you but by your landlord who owns the flat.

You must also keep in mind that wealth tax is an annual levy computed with reference to the market value of your taxable wealth. Wealth tax is payable on the market value of the wealth determined on the last date of the accounting year,which is 31st March every year. Wealth tax is payable over and above the income tax on the income earned by you during the year,irrespective of whether that asset generates any income for you or not. Jewellery does not generate any income,but wealth tax is payable on it.

While working out your aggregate assets on which wealth tax is payable,you are permitted to deduct any liability or a loan taken by you. So if you have acquired a second house that cost,say,Rs 50 lakh by taking a loan of Rs 40 lakh,the net value of that house on which wealth tax will have to be paid will be only Rs 10 lakh.

Similarly,in your wealth statement,you have to include the value of chargeable assets owned by your spouse and by your minor children. The value of chargeable assets owned by your spouse is included only if they have been gifted by you to her. Thus,if your spouse owns jewellery worth Rs 40 lakh which was gifted to her by her parents,then such jewellery is not to be included in your chargeable wealth. The position of the chargeable wealth of your minor children is different. Irrespective of who gave the chargeable asset to your minor child,the value of such assets has to be included in your chargeable wealth. But if the value of your spouses chargeable wealth is higher than your chargeable wealth,then the minor childs chargeable wealth has to be included in your spouses wealth and she has to pay the wealth tax on such assets also.

As indicated in the earlier part of this answer,wealth tax is not levied on productive assets. Thus,there is no wealth tax on jewellery,vacant plots of land,residential properties,etc.,if such assets are held as stock-in-trade of a business carried on by the taxpayer. In other words,a jeweller holding jewellery worth crores of rupees but as stock-in-trade of his business is not liable to pay any wealth tax on such jewellery. Similarly,a real estate developer who owns several flats in a building is also not liable to pay wealth tax on the value of all such lands,buildings,offices,flats,and so on.

Thus,if your wealth exceeds Rs 15 lakh on 31st March,2009,you should have filed your wealth tax return for the assessment year 2009-10 by 31st July,2009 or 30th October,2009. For next year,31st March 2010,your liability to file wealth tax return will arise only if the net chargeable wealth exceeds Rs 30 lakh. And the basic exemption is likely to be raised to Rs 50 crore. You will have to wait until the Direct Tax Code 2009 is passed into law by the Parliament.

The author is a Mumbai-based chartered accountant