Monday 6 May 2013

Wealth Tax! "Is it necessary to file Wealth Tax Returns"


      Wealth Tax - Is it necessary to file Wealth Tax Returns?

As a practising Chartered Accountant, I find that many people are not filing wealth tax returns, even though they have taxable wealth.

The reason for that is, the Incometax Department does not pay too much attention to catch hold of non- filers and stop filers of wealth tax returns.

Action is taken only when the Assessing Officer's attention is drawn to non-filing of wealth tax returns.

 Such action takes place,  when the case of the assessee is taken for scrutiny. If the Incometax Officer finds during the course of scrutiny assessment under Incometax Act, that the taxable wealth of the assessee is more than the taxable limit, he then issues escaped wealth tax notice.

Many officers do'nt do even that, as the knowledge of wealth tax Act is not very much among the officers of the department.

There are many reasons why wealth tax returns are to be filed every year and the benefits there of, are enumerated as below:

1. You will be able to account for all the assets you have acquired, even though they are not taxable under the wealth tax, if you regularly file your wealth tax return every year.

2. You will be able to  show all the liabilities which are incurred to acquire the assets shown in the return of wealth.

3. You will show all the jewellery you own and all the jewel you have purchased during the year, Jewellery inherited and jewellery received during  marriage and Jewellery received as shridhan, in the wealth tax return and hence there will be no seizure of the jewellery in case of search in your house.

4. All the cars you buy would be disclosed to the department and hence there will be no repercussions during the search or in scrutiny assessment .

5. All the properties you already own and purchased during the accounting year should be shown at the appropriate columns of the wealth tax return, so that you will be able to explain the assets owned by you during the course of search. Otherwise even if you had purchased these assets out of your accounted income, it will be very difficult to explain to the department as to how you acquired out of your income disclosed to the department.

6. It is better to show all the assets, taxable and non taxable assets in the return of wealth.

7.What are the taxable assets:

Only the vacant sites, Jewellery, cash on hand exceeding Rs.50000 and Cars owned are treated as taxable assets and are taxed after adjusting for the liabilities incurred to acquire the same. All other assets are exempt from wealth tax.  However we can include them as exempted assets in the separate schedule available in the wealth tax return.


You must know that bank deposits, Shares held, Building let out for more than 300 days in an year as commercial buildings, or as residentical house are exempt as they are of productive use. Similarly owner occupied residential houses are also exempt. Agricultural lands are also exempt. Only vacant sites treated as Urban Land, located with in 8 kms of a Corporation or municipalities are taxable as they are considered un productive.


That is the reason why billionaires like Mukesh Ambani etc, who may own billions and billions of rupees worth of Shares, may not have to pay any wealth tax on such value of their shares.


 Again they need not pay any tax on the dividend they receive, as the Incometax on such dividends, will be paid by the company. This is irrespective of the fact that the company may be owned by many small shareholders like me and you. This purely in inequitable and not justified. However there is saying that there is no EQUITY in taxation, especially in India.

8. Wealth tax is payable on net wealth ( ie value of assets minus liabilies) as on 31st March of every if such net wealth exceeds Rs. 30 lacs. The rate of wealth tax on the net wealth exceeding Rs 30 lacs, 1% of such exess net wealth. Hence it is a nominal sum for many and there is no point in not paying the same.

9. As a practising Chartered Accountant, I found in several search cases that is very easy to explain the acquisition of assets, Jewellery, car etc if the wealth tax returns are regularly filed and all assets are duly shown therein.

10 The department is taking steps to allow e filing of the wealth tax departments. If that proposal is implemented, it will be very easy to file the wealth tax returns. 

11. Now the department had introduced new provisions in the incometax returns of persons with more than Rs. 25 lacs income. The new provisions demand that the details of assets as on 31.03.2013 and liabilities incurred in relation thereto are to be disclosed in the return of income. Therefore it will be easy to file the wealth tax returns with the same data. However here we will be giving the value of the assets as on 31.03.2013 in the wealth tax return, rather than the cost of the assets as shown in Incometax returns.


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