Wealth Tax in India

The wealth tax in India is a tax levied on the high-class people of society. The main motive for imposing the wealth tax is to bring uniformity among taxpayers. Wealth tax is imposed based on the wealth of individuals and business enterprises. The government levied the wealth tax depending on the income of business enterprises and individuals. The central government imposes the wealth tax on the people and business enterprises. On the other hand, the government in a few states also levies wealth tax.

What is Wealth Tax?

The wealth tax in India is intended to decrease wealth inequality. The income tax is imposed on the income of the taxpayers. On the other hand, the wealth tax is levied on the taxpayer’s wealth. Wealth tax is mainly aimed at taxing the wealthy individuals who grew wealth via inheritance and personal efforts. The wealth tax is applicable to individuals, members of Hindu Undivided Families, and business enterprises. The government has set wealth tax at a flat rate and is imposed on the market price of your assets which includes land, cars, buildings, etc.

Nonetheless, when the Union Budget came into existence in 2015, the wealth tax was abolished. Instead of the wealth tax, a two percent extra surcharge came into existence. The wealth tax commenced during the 1950s, a direct net worth tax. 

What is the Wealth Tax Act?

The Wealth Tax Act was introduced in 1957 to regulate wealth tax in India. According to the Wealth Tax Act, people liable to pay the wealth tax will have to pay the tax based on the value of the owned assets. Indian citizens residing in India initially paid wealth tax based on the owned global assets. On the contrary, Indian people residing in other countries were liable to pay the wealth tax based on the owned assets in India. Nonetheless, the wealth tax did not apply to  a few entity mentioned below:

  • Investors investing in mutual funds
  • Political parties
  • Trusts
  • Cooperative Societies
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Provisions of Wealth Tax

A few provisions of wealth tax are as follows:

  • The wealth tax is imposed on super-wealthy individuals, members of Hindu Undivided Families, business enterprises, etc. 
  • Even though a company in collaboration with another company isn’t liable to pay the wealth tax, the market price of the assets that the company holds is calculated, and the distribution will take place between the companies; partners depending on profits and tax in the partners’ hands.
  • An important aspect that determines your wealth tax liability is your residence status. Indian citizens residing in India had to pay wealth tax depending on their assets abroad. On the other hand, Indians residing abroad and foreigners pad wealth tax on assets in India. 

Wealth Tax Exemptions

Exemptions in wealth tax are as follows:

  • Security investment
  • Area plots or homes less than 500 square metres
  • Houses which are used for business purposes
  • Properties which are rented for more than 300 days in one year
  • Rental vehicles
  • Stock-based business assets

Assets that Fall Under Wealth Tax

A few assets that fall under wealth tax are as follows:

  • Initially, wealth tax was not applicable to assets such as stocks, mutual funds, etc.
  • Wealth tax is applied to assets like real estate, gold, etc.
  • Boats, aeroplanes, and yachts come under wealth tax.
  • Wealth tax does not apply to one residential property, but if you possess more than one residential property, wealth tax is applicable. Wealth tax is not applicable in such cases if you use a residential property for business or rent a residential property.
  • Wealth tax is applicable to jewellery pieces manufactured from gold, platinum, and silver. Wealth tax is also applicable to Rs. 50000 cash.
  • If you transfer your assets to your spouse, the assets will still come under wealth tax.
  • Depending on the value of your car, a wealth tax is imposed.
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Reasons for the Abrogation of the Wealth Tax

A few reasons for the abrogation of the wealth tax are as follows:

  • Wealth tax decreases the regulatory burden and makes tax-related information effortless to trace because of good reporting- To calculate wealth tax, the authorities used to calculate the market price of the owned assets according to the conditions set in the Wealth Tax Act. In addition, taxpayers had to get an evaluation result from the evaluator for a few assets, such as gold. The calculation procedure made the wealth tax calculator procedure is complex and exhausting.
  • The base of the wealth tax gets broadened because the number of people paying the wealth tax is quite less than the people paying the income tax- The base of the wealth tax was quite low under the old regime. The wealth tax was nullified because the Government wished to bring in more people under the tax regime. Another thing to be remembered here is that people paying income tax are more than people paying wealth tax.
  • To Boost Revenue Collection- Economists determined that by replacing the wealth tax with an extra surcharge, the Government can collect more revenue in a fiscal year with the help of indirect taxes.
  • Simplify the Tax Procedure- According to some global economists, the Indian taxation system is complex and exhausting. Hence, the wealth tax was abolished to simplify the tax procedure.
  • Boost Spotlight on Governance- In 2015, during the finance ministers’ Union Budget Speech, it was stated that the lack of ease in doing business activities was a reason for abrogating wealth tax. In addition, with the help of the new system, the Government can tackle tax evasion practices because of the loopholes in the previous system.
  • Remove Tax Leakage- Authorities use asset declaration details that a taxpayer provides to connect the revealed wealth with the revealed income. This assures that there’s no tax leakage in the procedure. Under the old tax system, assets such as jewellery are difficult to trace down, and taxpayers might skip revealing such details in the tax declaration.
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Conclusion

Wealth Tax is levied on people who possess assets more than a certain limit. It is a significant revenue source for the government. It does not have any effect on the common masses, and high net-worth people pay the wealth tax in India. The wealth tax has great importance. The rising number of millionaires and billionaires in India is a vital reason for the existence of the wealth tax in India. 

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