WEALTH TAX PROVISIONS UNDER DIRECT TAX CODE

[Mr. M. GOVINDARAJAN]

Chapter X in Part E of the Direct Tax Code, 2010 deals with the wealth tax. Section 112(1) of the Direct Tax Code ('Code' for short) provides that subject to the provisions of this code, every person, other than a non profit organization, shall be liable to pay wealth tax on the net wealth on the valuation date of a financial year. The valuation date for the purpose of wealth tax is 31st day of March of the financial year. The term 'person' is defined under Section 314(184) of the Code. According to this section the term 'person' includes-

a)      An individual;

b)      A Hindu undivided family;

c)      A company;

d)      A co-operative society or any other society;

e)      A firm;

f)        A non profit organization;

g)      A body of individuals;

h)      A local authority;

i)        Every artificial juridical person, not falling within any of the preceding sub clauses.

whether or not the society, firm or organization, association, body, local authority or artificial juridical person was formed or established or incorporated with the object of deriving income.

SPECIFIED ASSETS:

For the computation of wealth tax the aggregate of the value on the valuation date of all specified assets, wherever located, belonging to the person will be taken into account. The specified assets shall be the following as indicated in Section 113(2) of the code:

Any building or land appurtenant thereto (hereinafter referred to as 'house') used for any purpose. The 'house' shall not include the following, namely:-

Ø      A house meant exclusively for residential purposes allotted by a company to an employee;

Ø      Any house for residential or commercial purposes which forms part of stock-in-trade;

Ø      Any house which the assessee may occupy for the purposes of business carried on by him;

Ø      Any house that has been let-out for a minimum period of three hundred days in the financial year;

Ø      Any house in the nature of commercial establishments or complexes.

Any farm house situated within 25 kilometers from local limits of any municipality or municipal corporation by whatever name called or a Cantonment Board;

Any urban land;

Motor car, yacht, boat, helicopter and aircraft other than those used by the assessee in the business running them on hire or as stock-in-trade;

Jewellery, bullion, furniture, utensils or any other article made wholly or party of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, other than those used by the assessee as stock-in-trade;

Archaeological collections, drawings, paintings, sculptures or any other work of act;

Watch having value in excess of fifty thousand rupees;

Cash in hand, in excess of two lakh rupees, of individuals and Hindu undivided families;

Deposit in a bank located outside India, in case of individuals and Hindu undivided families, and in the case of other persons any such deposit not recorded in the books of account;

Any interest in a foreign trust or any other body located outside India, whether incorporated or not, other than a foreign company; and

Any equity or preference shares held by a resident in a controlled foreign company, as referred to in the twentieth schedule.

The value of any specified asset, other than cash, shall be determined in such manner as may be prescribed.

The specified assets shall not include the following:

Any one building in the occupation of a Ruler, being a building which immediately before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, was his official residence by virtue of a declaration by the Central Government under paragraph 13 of the Merged States (Taxation Concession) order, 1949, or paragraph 15 of the Part B States (Taxation Concessions) Order, 1950;

Jewellery in the possession of any Ruler, not being his personal property, which has been recognized as his heirloom-

Ø      By the Central Government before the commencement of the Wealth Tax Act, 1957 (27 of 1957), as it stood before the commencement of this code; or

Ø      By the Board at the time of his first assessment to wealth-tax under the Wealth Tax Act, 1957 (27 of 1957), as it stood before the commencement of this Code;

The value of the assets located outside India, if the person is a non resident; and

Any one house or part of a house or on vacant plot of land not exceeding five hundred square meters of area belonging to an individual or a Hindu undivided family.

NET WEALTH:

Wealth tax is computed on the net wealth. The specified assets as discussed shall be deemed to be belonging to the person, being an individual, and included in computing his net wealth, if such assets, as on the valuation date are held, whether in the form they were transferred or otherwise. Section 114(1) gives the list of the same as follows:

By the spouse of such individual to whom such asset has been transferred by him, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart;

By a minor child, not being a person with disability or person with severe disability, of such individual;  This asset shall be included in the net wealth of-

Ø      The parent who is the guardian of the minor child; or

Ø      The parent whose net wealth is higher, if both the parents are guardians of the child.

By a person to whom such asset has been transferred by the individual, directly or indirectly, otherwise than for adequate consideration for the immediately or deferred benefit of the individual or his spouse; a transfer shall be deemed to be revocable if-

Ø      It contains any provision for the re-transfer, directly or indirectly, of the whole or any part of the income or asset to the transferor; or

Ø      It, in any way, gives the transferor a right to re-assume power directly or indirectly, over the whole or any part of the income or asset.

By a trust to whom such asset has been transferred by the individual, if the transfer is revocable during the life time of the beneficiary of the trust;

By a person, not being a trust, to whom such asset has been transferred by the individual, if the transfer is revocable during the lifetime of the person; and

By a Hindu undivided family by way of any converted property.

Section 114(2) provides that the provisions of Section 114(1) shall not apply in respect of such specified asset as has been acquired by the minor child out of his income referred to in Sec. 9(1) and which are held by him on the valuation date.

The person shall, notwithstanding anything in this Code or in any other law for the time being in force, be deemed to be the owner of a building or part thereof, if he is a member of a co-operative society, company or other association of persons and the building or part thereof is allotted or leased to him under a house building scheme of the society, company or association, as the case may be.

This clause further provides that the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate. The value of any assets transferred under an irrevocable transfer shall be liable to be included in computing the net wealth of the transferor in the year in which the power to revoke vests in him.

COMPUTATION OF NET WEALTH:

Section 113(1) provides the method for calculation of net wealth chargeable to wealth tax. The net wealth of a person shall be the amount computed in accordance with the formula noted below:

Net wealth = A- B

Where A is the aggregate of the value on the valuation date, of all the specified assets, wherever located, belonging to the person; and

B is the aggregate of the value on the valuation date, of all the debts, owed by the person, which have been incurred in relation to the specified assets.

TAX ON NET WEALTH:

The wealth tax shall be charged in respect of the net wealth on the valuation date of a financial year at the rate as detailed below: 

1. Where the net wealth as on the valuation date does not exceed Rs. One crore - NIL;
2. Where the net wealth, as on valuation date exceed Rs. One crore - 1% of the amount which the net wealth exceeds one crore rupees.

The liability to wealth tax shall be discharged by payment of pre paid taxes in accordance with the provisions of this Code. The wealth tax charged under this section shall be collected after allowing credit for pre paid taxes, if any, in accordance with the provisions of this code.

REPEALING OF WEALTH TAX ACT, 1957:       

Section 318(1) repealed the Wealth Tax Act, 1957 (27 of 1957). Section 318(2) provides that notwithstanding the repeal of wealth tax-

Where a return of wealth has been filed before the commencement of this code by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and confirmed as if this code had not been enacted;

Where a return of wealth is filed after the commencement of this code, otherwise than in pursuance of a notice under Sec. 17 of the repealed wealth tax Act, by any person for the financial year ending on 31.03.2012 or any earlier year, the assessment of that person for that year shall made in accordance with procedure specified in this code;

Any proceeding pending on the commencement of this code before any wealth tax authority to Appellate Tribunal etc., shall be continued under the repealed Wealth Tax Act as if this code had not been enacted;

Where in respect of any assessment year after the year ending 31.03.2001 -

Ø      A notice issued under Sec. 17 of the repealed Wealth Tax Act has been issued before the commencement of this code, the proceedings in pursuance of the notice may be continued and disposed of as if this code had not been enacted;

Ø      Any wealth liable to tax has escaped assessment within the meaning of that expression in Section 159 and no proceedings under Sec. 17 of the repealed wealth tax in respect of any such wealth are pending at the commencement of this code, a notice under Section 159 may be issued with respect to that financial year and all the provisions of this Code shall apply accordingly;

Any proceeding for the imposition of a penalty in respect of any assessment completed before 01.04.2012 may be initiated and any such penalty may be imposed under the repealed wealth tax code as if this code had not been enacted;

Any election or declaration made or option exercised by an assessee under any provision of the repealed wealth tax act and in force immediately before the commencement of the code shall be deemed to have been an election or declaration made, or option exercised, under the corresponding provision of this code;

Where, in respect of any assessment completed before the commencement of this Code, a refund falls due after such commencement in the payment of any sum due under such completed assessment, the provision of this code relating to interest payable by the Central Government on refunds and interest payable by the assessee for default shall apply;

Any sum payable under the repealed Wealth Tax Act may be recovered under this Code, but without prejudice to any action already taken for the recovery of such sum under such repealed Acts;

Any agreement entered into under Sec. 44A of the repealed Wealth Tax Act shall, so far as it is not inconsistent with Sec. 291 of this Code, be deemed to have been entered into Section 291 of this Code and shall continue in force accordingly;

Any order made under the provisions of the repealed wealth tax act shall, so far as it is not inconsistent with the corresponding provisions of this Code, be deemed to have been made under the corresponding provisions and shall continue in force accordingly;

Where the period prescribed for any application, appeal, reference or revision under the repealed Wealth Tax Act, had expired on or before the commencement of this Code, nothing in this code shall be construed as enabling any such application, appeal, reference or revision to be made under this Code by reason only of the fact that a longer period therefore is prescribed or provision is made for extension of time in suitable cases by the appropriate authority.