Theory, tax planning and Sum
Ascertain whether the assesse is taxable under the wealth tax Act
Find out valuation date
Ascertain residential status and citizenship
Find out the value of deemed assets under sec 4
Deduct value of assets exempt as per section 5
Deduct debts owned by the assessee
Individual, HUF and Company at 1% of the
amount by which net wealth exceeds Rs 15 lacs.
No wealth tax is chargeable to
Co.’s Registered u/s 25 of Companies Act,1956
(Promoting commerce, art, science etc.
Co-operative society, social club, political party
Mutual fund specified u/s 10(23D) of The IT Act.
Assessment Year: 12 months immediately after
the valuation date.
It is access of assets over debts. Assets
include deemed assets but not exempt assets.
Incidence of tax
Particulars R but O.R R but not O.R N.R
Indian Individual, TW=(x-
HUF and Co. y)+(p-q) T.W=x-y T.W=x-y
T.f W= p-q T.f W= p-q
indivudual who is a
foreign national T.W=x-y T.W=x-y T.W=x-y
T.f W= p-q T.f W= p-q T.f W= p-q
x= all assets located in india, including deemed assets. y= debts in relation to x
p= All assets located out of india including deemed assets, q= debts in relation to p
Assets (sec 2 (ea))
Guests House, residential house or commercial
Any building or land whether used for commercial or residential
purpose or for the purpose of guest house.
A farm house situated within 25 Kms from local limits of any
municipality or a cantonment board.
When a house/residential house/ farm house is not treated
Alloted to employee or officer or a director who is whole time
employment and his gross dalary is less than 5 lacs
House as stock in trade
A house used for own business or profession.
A let out property for a period of atleast 300 days
A commercial complex.
Motor cars (ii)
Except the following two, any other motor car is an
Motor car used by the assessee in the business
of running them on hire or
Motor cars treated as stock in trade
Jewellery, bullion, utensils of gold, silver etc (iii)
Ornaments made of gold, silver, platinum or any other precious
metal or any alloy containing one or more of such precious
metals, whether sewn into wearing apparel or not.
Precious or semi precious stones whether or not set in any
furniture, utensils or other or worked or…
Stock in trade
Gold deposit bonds
Yachts, boats and aircrafts (vi)
Other than those used by the assessee for commercial
purpose are treated as “assets”
Urban land (v). Land means land situated in
the following area.
a) Within the jurisdiction of municipality, and which
has a population of not less than 10000
according to the preceding census of which
relevant figures have been published before the
valuation date. Or
b) In any area within such a distance ( not being
more than 8 kms) from the local limits of any
Cash in hand (vi)
The following is treated as
Individual and Hindu cash in hand on the last moment of the
Undivided valuation date in excess of rs.
Any amount not recorded in books of
any other person account.
DEEMED ASSETS Sec. 4)
Assets transferred by one spouse to another
Asset is transferred by an individual after 31-3-1956
The assets transferred to his or her spouse.
The transfer may be direct or indirect.
The asset is transferred other than adequate consideration or in
connection with an agreement to live apart.
The asset may be with the transferee in the same form as it was
transferred as on valuation date.
Not applicable to HUF, if the transfer is in favour of one of its
Adequate consideration cannot be equated to sufficient or good
or valid consideration.
Spouse means lawfully wedded person only.
Assets held by minor child (Sec 4(I)(a)(ii))
The net wealth should be clubbed with that parent
whose net wealth is greater.
Those assets which are acquired by the minor either
on account of any manual work done by him or by his
skill, talent or specialised knowledge are not clubbed.
Such clubbing is not applicable if the child is no longer
When the asset is clubbed with one parent’s wealth of
the minor ,such asset shall not be included in other
parent’s health in any succeeding years, untill and
unless the Assessing officer is satisfied that it is
necessary to do so.
Assets transferred to a person or an association
of person (sec 4(1)(a)(iii))
Assets transferred under revocable transfers
Assets transferred to son’s wife (sec 4(1)(a)(v))
Assets exempt from tax (sec 5)
Property held under a trust.
Coparceners interest in a HUF.
Residential building of a former ruler.
Former ruler’s jewellery. (recognized as heir
loom by central govt before 1-4-1957 or by the
board after that.)
One house or a part of house for an individual or
From the aggregrate of all assets including deemed
assets but not exempt assets, the debts owned
by assesse are to be subtracted, subjec tto
Only debt owned by the assessee on the
valuation date are deductible.
Debt should have been incurred in relation to
Valuation of assets
Valuation of building [part B of schedule III]
with effect from the assessement year 1989-
Find out gross maintainable rent
Find out net maintainable rent(gross – municipal taxes
and 15% of gross maintainable rent)
Capitalise net maintainable rent
It can be done by * the net maintainable rent with 12.5
if property is constructed on leasehold land, * by 10,
subject to unexpired lease term is 50 years or more. (*
by 8 in case it is less than 50 years)
Properties acquired/ constructed after 31-3-1974
Find out the value of house property as above.
Find out the original cost plus cost of improvement of the
Decision: the higher of above is taken as capitalised.
The rule is not applicable if the following conditions
1. Only one house property is exempted.
2. The HP is used for residential purpose
throughout the year and acquired/constructed
after March 31, 1974.
3. The cost of acquisition/construction plus cost of
improvement does not exceeds Rs 50 lakhs, if
it is situated at metros and 25 lakhs at any other
Fourth Step Add premium
Fourth step is to add a premium to the capitalised
value determined under the third step if the un
built area of the land on which the property is
built exceeds the specified area.
Aggregate area: it refers to the aggregate area on
which the property is built as well as the unbuilt
Unbuilt area: refers to that part of aggregate area
on which no building has been erected.
When the property is situated at metros, 60 % of the
When property is situated at selected areas like Agra,
Ahmedabad, Surat, Vadodara etc (total 26 cities), 65
Any other place 70 %.
Fifth step: Deduct unearned increment
The fifth step is to deduct the amount of unearned
increment payable. If the case of property built
on leasehold land any part of the unearned
increase in value is payable to the government or
any authority at the time of transfer of the
property, the value of such property, as
determined above will be reduced by the amount
liable to be so paid if the property had been
trransferred on the valuation date or 50 % of the
value of the property so determined, whichever is
1. For the assessment yr. 2008-09, X shows
valuation date is 31-3-2008 submits the following
particulars of the assets and liabilities. Determine
his wealth tax liability on the assumption that
a) X is an Indian national and resident and
ordinarily resident in India.
b) X is an Indian national but not ordinarily
resident in India.
c) X is a foreign national and non resident in
Jewellery in India 64,00,000
Utensils of gold (situated 31,70,000
Capital borrowed for 28,000
purchasing utensils of gold
Capital borrowed for 43,000
acquiring jewellery in India
2. X furnishes the following particulars for the
compilation of his wealth tax return for the
a) Gifts of jewellery made to wife from time to
time aggregrating Rs 60,000 market value on
valuation date 2,00,000.
b) Flat purchased under installment payment
scheme in 1972 for Rs 7,50,000 used for
purposes of his residence and market value as
on 31-3-2008 (installment unpaid 50000)
c) Urban land transferred to minor handicapped
child valued on 31-3-2008 5,00,000
Explain how you will deal with these items.
3. X ltd is a company on business in the construction and sale of
residential flats. It furnishes the following data and requests you to
compile wealth tax returns ad determine the tax payable for
assessement year 2008-09
1. Land in rural area(5 kms 92,78,600 10. Residential flats of identical 15,00,000
of Ajmer, construction size provided to 6 employees for
permissible) their use near factory which is
situated in rural area (salary of
2. Land in urban area 23,00,000
two of them exceeds Rs.
permissible as per
municipal laws) 11. Residence provided to 10,00,000
Managing Director (Salary
3.Land in urban area (held 49,50,000
Exceeds Rs. 5,00,000
as stock in trade since
2000) 12.Flats constructed and 30,00,000
remaining unsold. (Not being held
4. Motor cars (1 of them 11,30,000
as stock in trade)
imported Rs. 4,00,000 and
none of them is held as 13.Residence provided to whole 17,00,000
stock in trade) managing Director (Salary
5. Jewellery (Not being 18,00,000
held as stock in trade) 14. Three let out residential
houses given on rent (value of
6. Aircraft 1,58,00,000
each being 50 lakhs, one of them
7. Bank balance 3,10,000 is let out for only 50 days, during
8.Cash Balance 1,70,000 2006-07)
9.Guest house and land 8,00,000
attached in rural area
The company has taken a loan of Rs 6,00,000,
Rs. 7,00,000, Rs 50,000 and Rs 90,000 for
acquiring property numbers 5,6,12 and 13
respectively. Find out the wealth tax liability of
the company for the assessement year 2008-09.