Tax: Kanu Doshi

I have been told that the exemption limit for wealth tax has been raised from Rs 15 lakh to Rs 30 lakh. However, some colleagues say this amount has been raised to Rs 50 crore. I would like to know my tax liability for the year ended March 31, 2009. I have agricultural land in Rajasthan, a residential house in Jaipur and a flat in Mumbai. My husband has some diamond-studded accessories and some shares and bank deposits.
Namratta Bubna, Jaipur, Rajasthan.

All these exemption figures, of Rs 15 lakh, Rs 30 lakh and Rs 50 crore, are correct. But the dates from when they apply are different. For your valuation date, March 31, 2009, the basic exemption limit is Rs 15 lakh. For your valuation date, March 31, 2010, the basic exemption has been raised to Rs 30 lakh. And under the proposed direct tax code, this limit has been raised to Rs 50 crore.

 

The incidence of wealth tax has been considerably reduced in the past years and is now confined to largely unproductive assets like vacant plots, vacant houses, jewellery, motor cars and cash in excess of Rs 50,000. In other words, your productive assets, like shares in companies, deposits with banks and companies, bonds and debentures, mutual fund units, national savings certificates, among others, do not attract wealth tax.

Effectively, therefore, wealth tax is now only on: A vacant house, except the one which is exempt; vacant plot of land (other than agricultural land); silver, gold, precious stones, jewellery, motor car (other than for business of hire); and cash in excess of Rs 50,000.

This tax is charged from individuals, hindu undivided families and companies. The levy is a flat 1 per cent.

While working out your aggregate chargeable assets, you are permitted to deduct any liability or a loan taken by you. So, if you have acquired the second house costing Rs 50 lakh by taking a loan of Rs 40 lakh, the net chargeable value of that house will be only Rs 10 lakh.

The tax is not levied on productive assets. Thus, there is no wealth tax even on jewellery, vacant plots, residential properties, etc, if these are held as stock-in-trade of a business carried on by the tax payer. In other words, a jeweller holding jewellery worth a few crore rupees is not liable to pay any wealth tax. The same applies to a real estate developer or a builder owning several flats or plots of land.

Kanu Doshi is a Senior Chartered Accountant & is Dean, Finance. 
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