The Wealth-Tax Act, 1957

• Wealth tax is a tax on the benefits derived from property ownership.

• The tax is to be paid year after year on the same property on its market
value, whether or not such property yields any income.

• Every individual and HUF whose net wealth exceeds Rs15,00,000/-

is required to furnish a return in the prescribed form before the
due dates as specified by ITA, which is 31st October of the AY for
i) a company
ii) non-corporate taxpayers whose accounts are to be statutorily audited and

iii) those who fall in the 1-by-6 category. For individuals and HUFs, the
date shall be 31st July.

• Education Cess of 3% is not leviable on the amount of Wealth Tax.

 Wealth Tax
• Chapter XVII of the Discussion Paper on the Direct Taxes Code (DTC) deals with
the levy of wealth tax.

• Under the DTC, wealth-tax will be payable by an individual, HUF and private
discretionary trusts. It will be levied on net wealth on the valuation date i.e.
the last day of the financial year.

• Net wealth is defined as assets chargeable to wealth-tax as reduced by the

debt owed in respect of such assets. Assets chargeable to wealth-tax shall
mean all assets, including financial assets and deemed assets, as reduced by
exempted assets.

• Exempted assets include stock in trade, a single residential house or a plot of

land etc.
 Wealth Tax
Particulars WTA DTC 10
Taxpayers ► Individual, HUF and ► All taxpayers except NPOs @ 1% on
covered companies @ 1% on threshold > Rs. 1 Crore
threshold > Rs. 30 Lakhs
► Firms,1 AOPs, Trusts, etc will be taxed in
their own capacity
► Local authority also covered

Deduction for ► Available ► Available

related debts
owed
Method of ► Prescribed in Schedule III ► To be prescribed
valuation
Clubbing ► Assets held by spouse, ► Continues broadly on similar lines with
provisions for minor child, revocable certain modifications
individuals trust, etc and converted
HUF property

1. Partner/Member should not be taxed again on same wealth

 Wealth Tax
Particulars WTA DTC 10
Specified assets ► Urban land, building All existing specified assets 3 plus following additional assets :-
(including farm house
located within 25 kms ► Helicopter
of any municipality or ► Archaeological collections, drawings, paintings,
Cantonment Board), sculptures, or any other work of art 4

motor cars, jewellery ► Watch having value in excess of Rs. 50,000/- 4

& bullion, yachts,
boats, aircrafts and ► Deposits located in bank located outside India in case of
cash in hand 2 individuals and HUFs (even if recorded in books of
account)
► Deposits located in bank located outside India in case of
other persons only if not recorded in books of account.
[Does not however include units of overseas mutual fund
/ debentures of F Co. and shares of F Co. which is not
CFC].
► Any interest in a foreign trust or any other body located
outside India (whether incorporated or not) other than a
foreign company
► Any equity or preference share held by a resident in a
controlled foreign company (as referred to in the
Twentieth Schedule)

2 Cash in hand in excess of Rs. 50,000 in hands of individuals/HUFs and unrecorded cash in hands of others
3.Threshold for cash in hand for individuals/HUFS enhanced to Rs. 2 lakhs and not chargeable in hands of others
4.Whether held as capital asset or stock in trade
 Exempted assets – Immoveable property
WTA DTC 10
► Residential house allotted by company to employee having ► Condition of gross annual salary < Rs. 5 L
gross annual salary < Rs. 5 L removed

► Residential property let out for 300 days in a FY ► House (including commercial property)
let out for 300 days in a FY

► House held as stock in trade ► All these assets continue to be exempt

► House occupied for business or profession

► Commercial establishment or complexes

► One house or part of house or vacant plot of land < 500

sq. mtrs owned by an individual or HUF

► Official residence of Ruler

► Assets located outside India for foreign citizens and non- ► Assets located outside India continue to
resident/not ordinarily resident individuals and HUFs be exempt for non-residents
 Exempted assets – Immoveable
property
WTA DTC 10
► Urban land on which construction is not permissible ► Exemption not available
or on which building is constructed with approval of
appropriate authority
► Unused land held for industrial purposes upto two
years
► Urban land held as stock in trade upto ten years

► Assets5 acquired from moneys brought from outside ► Exemption not available
India by returning Indians and PIOs

5 Exemption restricted to seven years from year of return

 Exempted assets – Movable assets
WTA DTC 10
► Motor cars used in business of running ► All these assets continue to be exempt
them on hire or as stock in trade
► Jewellery, bullion, etc used as stock in trade
► Heirloom jewellery of Ruler

► Yachts, boats and aircrafts used for ► Exempt (including helicopters) if used in
commercial purposes business of running them on hire or as
stock in trade
► Assets located outside India for foreign ► Assets located outside India exempt for
citizens and non-resident/not ordinarily non-residents
resident individuals and HUFs

► Assets6 brought from outside India or ► Exemption not available

acquired from moneys brought from
outside India by returning Indians and PIOs

6 Exemption restricted to seven years from year of return

 Deemed ownership
WTA DTC 10
► Building allotted or leased by co-operative ► These provisions continue in present form
society, company or AOP to its members
► Holder of impartible estate deemed
individual owner of all properties
comprised in the estate

► Possession of building under part ► Omitted for wealth tax purposes but
performance of contract under TP Act retained for house property income
taxation purposes.
► Hence, legal owner may need to check
wealth tax while economic owner will enjoy
the property
► Leasehold rights of building for more than ► Omitted for both wealth tax and house
12 years property income tax purposes. But, wealth
tax exemption available for lessor if house
let out for 300 days in a FY.
 Financial assets
• Financial assets (including shares in a company – whether
equity or preference, and whether, of Indian or foreign
company) are ordinarily not liable to WT.
• Other financial assets like insurance policies, bonds,
debentures, bank deposits etc, are also not liable for WT.
• Following are plausible exceptions which create tax exposure
– Equity and preference shares held by a resident company in CFC.
• Properties owned by the CFC may not necessarily be specified assets
– Interest in foreign trust or any other body7 located outside India
(whether incorporated or not) for both residents and non-residents 8
• Properties owned by the trust/body may not necessarily be specified assets
• Interest in a discretionary trust is not identifiable, but a discretionary trust is
a taxable entity
• If both trust and beneficiaries are resident in India, whether double taxation
can arise 9?

7.Not being a foreign company

8. Whether non-residents protected by exclusion for assets located outside India if assets of trust are also located outside India?
9. S.17 of DTC protects double taxation of ‘income’ only and not ‘net wealth’ or ‘tax base’
 In short on wealth tax
• Every person, other than a non-profit organization, shall be liable to pay wealth tax
• · Wealth tax shall be payable at the rate of 1 percent on net wealth exceeding ` 10
million (as against the earlier limit of ` 3 million)
• · Definition of “specified assets” shall include (among other things) the following items:
• - building or land appurtenant thereto farm house situated in the specified areas
• - urban land
• - motor car, boat, helicopter, etc., with certain exceptions
• - jewelry, bullion, etc.
• - archaeological collections, drawings, paintings, sculptures,
• - watch having value in excess of ` 50,000,
• - cash in hand exceeding ` 200,000,
• - equity or preference shares held in a Controlled Foreign Company, etc.
• Certain exemptions have been provided, such as residential houses allotted to
employees, houses occupied for business purposes, etc.
 Calculation of Income from house propert

• Gross Annual Value X

• Less : Municipal Taxes paid by owner X
• Net Annual Value X
• Less : Deduction u/s 24
• i) Standard Deduction
( 30 % of Net Annual Value) X
• ii) Interest on Loan X

• Income from House Property X

 What is income from house property?
• Income from property, consisting of any buildings
or lands thereto of which the assessee is the owner
• The portions of such property as he may occupy for
the purposes of any business or profession carried
on by him, the profits of which are chargeable to
income tax, shall be exempt to income tax under
the head "Income from House Property". 
 Income from House property - Scheme of taxation

Particulars ITA DTC 2010

Basis of charge Ownership of house property Ownership of house property 1

Basis of taxation Property which is let as also Property which is actually let
vacant property (excluding one
SOP)
Exclusions from charge ► Property which is occupied ► Property which is occupied for
for the purpose of business business is not a let property and
hence, stands excluded from the
charge in which is w.r.t actual
letting.

► Chapter does not apply to

property used as hospital, hotel,
convention centre, cold storage
and as part of SEZ2

1
Under ITA, lessee of a lease of more than 12 years was considered to be the owner. This fiction is absent in DTC
2
The conjunction in section 24(5)(ii)should have been ‘or’ instead of ‘and’. Lease income of SEZ developer may be business income
under S.33(3)(c). This makes it easier for SEZ developer to claim incentive by claiming the income to be business income. There is no
such specific provision in respect of Industrial Park.
 Income from House property - Scheme of taxation
Particulars ITA DTC 2010
Basis of gross rent ► Notional amount can also be part of ► No scope for notional addition. Gross
annual value or annual rent. rent comprises of rent actually received
3

► Receipt of arrears is chargeable in ► No change

the year of receipt
► Unrealised rent is, in specified cases ► Rent is chargeable on “receivable”
chargeable only in the year of basis. There is no back up provision to
realization. exclude unrealised rent.
Standard deduction 3 ► 30% ► 20%
Interest on un let ► Upto Rs 1.5 lakhs for a property ► Upto Rs 1.5 lakh under S.74 provided
property which is self occupied the property is not at all let throughout
the year 4
Interest on Loan for let ► No cap on deduction ► No cap on deduction
property
Pre-construction ► Amortization over 5 years from the ► Amortization over 5 years from the
interest year of acquisition / construction year of acquisition/ construction

3
The service tax collection may form part of gross rent. Unlike in DTC 2009, there is no specific back up deduction in respect of
payment of service tax.
4
Deduction allowed to individual and HUF as tax incentives from gross total income. Unlike in ITA which permits carry forward of
loss, in DTC, taxpayer will forfeit the claim if there is no positive gross total income.
 Income from House property - Scheme of
taxation

► Income from house property under DTC

► The chapter is applicable for house properties ready for use [section 24(5)(b)].
► Subject to exception in respect of SEZ, hotel etc, if income is assessable as business
income, the chapter is applicable notwithstanding that letting is in the nature of trade,
commerce or business.
► The definition of term ‘house property’ may leave litigation prone scope for one to
suggest that the chapter cannot apply when there is bare letting without facility or
service.
► Security deposit against long term leasing of 12 years or more is considered as income
under residuary head. Amount allowed as deduction in the year of repayment.
 Impact of changes on House property
• The big implications is that people who have multiple properties (which are lying
vacant) and therefore are liable to pay tax on notional rental income both under the
current provision will not be required to include any notional income on this account.
• For people who have taken a loan to acquire a property that is not let out whilst they
will benefit as they will not require to calculate rental income on notional basis (see
point 1 above) they will also not be able to claim any deduction for interest payable
on such loan.
• Of course one consequence could be increased reluctance of buyers to buy under
construction property, as the interest payable during the construction period will no
longer be tax deductible.
• This is not such a bad thing as it looks as anywhere else in the world it is the builders
who bear the construction risks (and the entire interest cost during the construction
period).
• This may actually lead to the institutionalizing of the market which cannot but be
good for the larger industry players.