Wealth tax in India is a tax levied on the wealth of individuals and companies. The government imposes these taxes based on the income earned by individuals and companies.
The central government levies a wealth tax on individuals and companies in India, while some states also impose such a tax. It is set at a flat rate and is charged on the value of an individual's assets, including land, buildings, and cars.
A wealth tax in India is a tax charged on the assets of individuals with a certain wealth threshold. The purpose of this tax is to reduce inequalities in wealth. It applies to individuals, HUFs, and companies.
Note: Wealth tax was abolished in the 2015 budget (that was effective FY 2015-16), since the cost incurred for tax recovery was higher than the benefit emanated.
The finance minister introduced a surcharge in place of wealth tax. The surcharge is levied from 2% to 12% for the highly-rich section of people. Those who have an income above Rs.1 crore and companies having an income of Rs.10 crore or above will tend to come under this.
The provisions passed out by the Income Tax Department says-
“Income tax is levied on the taxpayer's income, whereas wealth tax is levied on the taxpayer's wealth. Wealth tax is governed by the Wealth Tax Act 1957. In this part, you can gain knowledge of various provisions of the Wealth Tax Act of 1957. Here, it is to be noted that the Wealth-tax Act of 1957 was abolished.
Following are the basic provisions of Wealth tax Law that are to be kept in mind-
Wealth tax is levied on the following persons only-
A partnership firm is not liable to wealth tax, but the assets of the partnership firm are charged to tax in the hands of the partners of the firm in the form of “Interest in partnership firm”.
In other words, a partnership firm is not liable to wealth tax, but the value of the assets held by the firm is to be ascertained, and this value will be distributed amongst the partners of the firm and will be charged to tax in the hands of the partners.
However, where a minor is admitted to the benefits of partnership in a firm, the value of the interest of such a minor in the firm shall be included in the net wealth of the minor's parent.
Similarly, an association of persons (not being a cooperative housing society) is not liable to wealth tax. Still, the assets of the association of a person are charged to tax in the hands of its members in the form of an “Interest in a partnership firm.”
Wealth tax is levied on the net wealth owned by a person on the valuation date, i.e., 31st March of every year. Wealth tax is levied at 1% on the net wealth of more than Rs. 30,00,000.
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The following entities are not liable to pay wealth tax-
(a) any company registered under section 25 of the Companies Act
(b) any cooperative society
(c) any social club
(d) any political party
(e) a Mutual Fund specified under section 10(23D) of the Income-tax Act
(f) Reserve Bank of India
Wealth tax is calculated when the total net income of an individual, HUF, or company exceeds the amount of ₹30 lakhs. A tax of 1% is levied on the amount.
Here are the key reasons why wealth tax has been abolished-
In order to make the existing tax regulations simple, transparent and seamless, the Indian government decided to abolish the wealth tax. It was fairly complex.
Since the wealth tax was replaced with a surcharge, the government estimated to earn increased revenue than it was before.
In order to compute their net wealth, the wealth taxpayers had to value their assets according to the rules applicable to wealth tax. Even for many assets like jewellery, the taxpayers were supposed to get in touch with a registered valuer to avail of a valuation report.
Only a small section of people had knowledge about what wealth tax was all about. This resulted in the non-filing of wealth tax by a huge margin.
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