Wealth tax is the least talked about one under Income tax act. Most of us might have ignored this act till now. However, Income tax department has tightened its screw on transactions and assets of individuals as a result of which wealth tax comes into picture. So, what is wealth tax, what is the rate of wealth tax and what’s included and excluded in it? Let us know more about this act and how it impacts us.
What is Wealth tax act?
Wealth tax act, 1957 defines wealth tax as the tax that needs to be paid on net wealth. Net wealth is the difference between assets owned and debts owed.
Who needs to pay wealth tax?
Individuals, HUF and Companies whose net wealth exceeds the limit specified by the IT department for this purpose have to pay wealth tax before the due date.
What is the limit specified for wealth tax?
The maximum limit of net wealth to be liable for wealth tax is currently Rs. 30 lakhs. In case the net wealth is below this limit, wealth tax is not applicable.
Rate of wealth tax
Wealth tax rate specified by the IT department is 1% on the maximum limit of net wealth specified i.e. Rs. 30 lakhs. For example, if net wealth is Rs. 40 lakhs, wealth tax that needs to be paid would be 1% on Rs. 10 lakhs (40-30) i.e. Rs. 10,000.
What is exempt from wealth tax?
Residential property let out for more than 300 days in a year, cash held lesser than Rs. 50,000, shares, mutual funds, commercial complexes, land on which construction is done with approval of appropriate authority, trusts are exempt from wealth tax.
(Also read: How to save tax if you have more than one house?)
Due date for wealth tax
Every person who’s net wealth exceeds Rs. 30,00,000 on valuation date i.e. 31st March of the financial year has to file returns of wealth tax. The due date for such filing would be the same as for others i.e. 31st july for all individuals.
Penalty for ignoring wealth tax
Delay in payment of wealth tax also attracts interest penalty of 1% per month till the date of filing. A belated return can be filed within 1 year. There is also a penalty of 100% of the tax in case of non-payment of wealth tax. It can even go up to 500% of tax evaded. If it is proved to be a wilful default, there could be imprisonment of up to 7 years.
If you have not yet considered wealth tax on your assets, probably it’s time for you to do so. There is also a strong proposal to increase the wealth tax limit to Rs. 1 crore because of rising incomes and increased property prices.