Assets Taxable Under Wealth Tax in India

 Assets Taxable Under Wealth Tax in India

Wealth tax was a tax levied on the net wealth of individuals, Hindu Undivided Families (HUFs), and companies. However, with the introduction of the Finance Act, 2015, wealth tax was abolished in India. Despite its removal, understanding the assets that were taxable under wealth tax helps in understanding the concept and the criteria that were considered for taxation.

Key Assets Taxable Under Wealth Tax (Before Abolition)

Wealth tax applied to the net wealth of individuals and entities as of March 31 every year. The taxable net wealth was calculated by deducting the liabilities from the total assets owned by the individual or entity. Here are the types of assets that were taxable under wealth tax:

1. Immovable Property (Real Estate)

• Residential Property: Any residential property not used for business or professional purposes was taxable under wealth tax. If a person owned more than one residential house, only one house (at the choice of the taxpayer) was exempted.
• Vacant Land: Any vacant land in urban areas could be subject to wealth tax.
• Commercial Property: Commercial real estate properties, such as shops, offices, etc., were also taxable under wealth tax.

2. Jewels, Gold, and Precious Stones

• Jewelry: Gold, silver, platinum, and other jewelry, whether worn or stored, were subject to wealth tax. This includes coins, ornaments, and any other items made of precious metals or stones.
• Precious Stones: Diamonds, pearls, and other precious stones that are part of a collection or investment were taxed.

3. Vehicles

• Luxury Cars and Yachts: Luxury cars, yachts, aircraft, and other similar vehicles were taxable. However, vehicles used for business purposes or to earn income (such as taxis) were exempted.

4. Cash in Hand

• Large amounts of cash held by individuals or families, exceeding a prescribed limit, could be subject to wealth tax. This typically did not include cash used for normal living expenses.

5. Agricultural Land

• Non-Urban Agricultural Land: Agricultural land located in rural areas was exempt from wealth tax, but urban agricultural land was taxable.
• Land in Urban Areas: If agricultural land was located within municipal limits or urban areas, it was taxable under wealth tax.

6. Interest in a Partnership or Firm

• A person’s interest in a partnership or firm was considered as an asset under wealth tax. However, there were certain exemptions related to business assets that could be claimed under specific circumstances.

7. Buildings and Other Fixed Assets

• Any building or fixed asset that was not used for business purposes was taxable under wealth tax. This includes things like second homes, unproductive land, or buildings held as investments.

8. Non-Performing Assets (NPAs)

• Investments in certain non-performing assets, such as stocks, bonds, and shares held for long periods without yielding any income, could be taxed under wealth tax.

Exemptions Under Wealth Tax

Some assets were exempted from wealth tax, including:

• One residential house (which was the primary residence of the taxpayer).
• Agricultural land (outside municipal limits).
• Assets held for business purposes or assets that contributed to earning income.
• Assets used for charitable or educational purposes.

Wealth Tax Rate

The tax rate applied to wealth over a certain threshold (known as the "exemption limit"). For example, wealth tax was only charged on the net wealth exceeding ₹30 lakhs. The rate was typically 1% of the amount of net wealth exceeding the exemption limit.

Abolition of Wealth Tax

In 2015, the government of India abolished the wealth tax in the Finance Act. The move was aimed at simplifying the tax system, as wealth tax collection was relatively low and its enforcement involved high compliance costs.

Current Status:

• No wealth tax is levied anymore.
• However, assets like luxury cars, jewels, and real estate are still subject to taxation under other laws, such as Income Tax (capital gains tax) or GST (on goods and services).

In summary, before its abolition, wealth tax was a tax on a variety of assets, including real estate, vehicles, jewelry, and more. The aim was to tax the wealth of high-net-worth individuals to redistribute wealth in the economy. Although wealth tax no longer exists in India, the assets once taxed under it are still relevant for other taxation purposes like income tax and capital gains tax.