Wealth Tax

Wealth tax is a direct tax, which is charged on the net wealth of the

assessee. It is a tax on the benefits derived from ownership of

property. 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. Wealth tax, in India, is levied under Wealth-tax

Act, 1957.

The Income tax department under the Department of Revenue in the

Ministry of Finance administers the Wealth Tax Act, 1957 as well as

the Wealth Tax Rules framed there under.

Under the Act, the tax is charged in respect of the wealth held

during the assessment year by the following persons :-

Individual

Hindu Undivided Family(HUF)

Company

Chargeability to tax also depends upon the residential status of the

assessee same as the residential status for the purpose of the

Income Tax Act.

Wealth tax is not levied on productive assets, hence

investments in shares, debentures, UTI, mutual funds, etc are

exempt from it. The assets chargeable to wealth tax are :-

Guest house, residential house, commercial building

Motor car

Jewellery, bullion, utensils of gold, silver etc

Yachts, boats and aircrafts

Urban land

Cash in hand(in excess of 50,000), only for Individual & HUF

The following will not be included in Assets :-

Any of the above if held as Stock in trade.

A house held for business or profession.

Any property in nature of commercial complex.

A house let out for more than 300 days in a year.

Gold deposit bond.

A residential house allotted by a Company to an employee, or

an Officer, or a Whole Time Director ( Gross salary i.e.

excluding perquisites and before Standard Deduction of such

Employee, Officer, Director should be less than Rs. 5,00,000).

The Assets exempt from Wealth tax are :-

Property held under a trust.

Interest of the assessee in the coparcenary property of a HUF of

which he is a member.

Residential building of a former ruler.

Assets belonging to Indian repatriates.

One house or a part of house or a plot of land not exceeding

500sq.mts,for individual & HUF assessee.

Wealth tax is chargeable in respect of Net wealth corresponding to

Valuation date. (Net wealth means all assets less loans taken to

acquire those assets. Valuation date means 31st March of

immediately preceding the assessment year). In other words, the

value of the taxable assets on the valuation date is clubbed together

and is reduced by the amount of debt owed by the assessee. The net

wealth so arrived at is charged to tax at the specified rates. Wealth

tax is charged @ 1% of the amount by which the net wealth exceeds

Rs. 30 Lakhs.

With these brief write up on Wealth Tax we would like to

share discussion on having gold ornaments at home and

requirement of disclosers thereof to the income tax

department by way of filing of wealth tax returns.

Why Gold Ornaments / Silver Utensils / Diamond Ornaments

etc. Disclosure

It is advisable for an assessee to declare the nature and source of

non-taxable income or other receipts in the income tax and wealth

tax returns or in a statement enclosed with returns. When the entire

picture is place before the assessing officer there is little scope or

raid on the grounds of possessing undisclosed income.

In the case of a wealth tax assessee (ie.persons who is liable for

filing of wealth tax return) gold jewellery and ornaments found in

excess of the gross weight declared in the wealth tax returns only

need be seized.

In the case of a person not assessed to wealth tax (ie.persons who is

not liable for filing of wealth tax return), Gold jewellery and

ornaments

500 grams (42.867 Tola) per married lady

250 grams (21.433 Tola) per unmarried lady

100 grams (8.573 Tola) per male member of the family,

need not be seized.

(CBDT Instruction : No. 1916, dated 11/05/1994)

What happen if no disclosure of gold is made in wealth tax

return

Suppose Mrs.X is having gold ornaments of 60 Tola and she is liable

to file a wealth tax return.

(a) She has filed a wealth tax return showing gold ornaments of

25 Tola

(b) She has not filed wealth tax return

In the first category difference between 60 Tola & 25 Tola ie.35 Tola

and in the second category difference between 60 Toal & 50 Tola

ie.10 Tola be seized and if Mrs.X offers no explanation about the

nature and source of acquisition of the jewellery, or the

explanation offered by her is not, in the opinion of the Assessing

Officer, satisfactory , the value of jewellery may be deemed to be

the income of the assessee for such financial year.

Suppose the current market value of gold is Rs.20,000 & difference

in gold found 35 Tola then Rs.7,00,000 will be treated as income for

current financial year even though the purchase price of the gold

may be less than Rs.7,00,000. Tax will be levied @ 30% Rs.2,10,000

& Interest will be levied @ average rate which comes around 20% of

tax ie.Rs.42,000 plus penalty will be levied @ 100% to 300% of tax

ie.Rs.2,10,000 to 6,30,000 & Interest will come around Rs.42,000 to

Rs.1,26,000. Thus the tax and penalty will come more than the value

of gold.

Preserve important vouchers and other documentary evidence

for acquisition of assets

Where gold ornaments or jewellery have not been purchased by the

owner but have been acquired by way of gift on ceremonial occasion

or otherwise it is advisable that certificates carefully preserved.

It is necessary to declare the lockers in the income tax statements

and ensure that no unaccounted income, property or wealth is kept

in them. If all lockers are duly declared there is no risk of a raid.

If a person is not the owner of any bullion, jewellery, precious stones

or any other article or books of account in his possession but merely

a custodian of a friend or relatives property. In such cases it is

always better for the custodian to get a declaration from the owner

regarding the nature and source of the articles to satisfy himself

that they do not represent any undisclosed income or property.

Conclusion

Disclose all the gold, silver and diamond jewellery & utensils in

wealth tax return and avoid the harassment of department. For

further clarification feel free to contact CA Sheela Dedhia at

Hiren Sanghvi & Associates on 2438 4848 / 6662 5362 / 6661

8933.

For Excise Consultation Contact :

Guidelines for seizure of jewellery and ornaments in course of

search:

The CBDT has vide instruction No. 1916 dated 11th May, 1994,

issued guidelines for seizure of jewellery and ornaments in course of

search. The said guidelines, which is reported in (1994) 120 Taxation

(St.) 98, is reproduced below.

‘Instances of seizure of jewellery of small quantity in course of

operations under section 132 have come to the notice of the Board.

The question of a common approach to situations where search

parties come across items of jewellery, has been examined by the

Board and following guidelines are issued for strict compliance:–

In the case of a wealth-tax assessee, gold jewellery and ornaments

found in excess of the gross weight declared in the wealth-tax return

only need be seized.

In the case of a person not assessed to wealth-tax, gold jewellery

and ornaments to the extent of 500gms. per married lady,

250gms. per unmarried lady and 100 gms. per male member

of the family, need not be seized.

The authorised officer may, having regard to the status of the family

and the custom and practices of the community to which the family

belongs and other circumstances of the case, decide to exclude a

larger quantity of jewellery and ornaments from seizure. This should

be reported to the Director of Income-tax / Commissioner authorising

the search at the time of furnishing the search report.

In all cases, a detailed inventory of the jewellery and ornaments

found must be prepared to be used for assessment purposes.