Contemporary Orange Template by HC121108042658


									         Wealth Tax

Theory, tax planning and Sum

Pre-computaion steps
Ascertain whether the assesse is taxable under the wealth tax Act
Find out valuation date
Ascertain residential status and citizenship

Computaion steps
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.
 Net wealth
      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
  building (i)
    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
  as “Assets”
 Exceptions
 Exception 1
        Residential purpose.
        Alloted to employee or officer or a director who is whole time
         employment and his gross dalary is less than 5 lacs
 Exception 2
        House as stock in trade
 Exception 3
      A house used for own business or profession.
 Exception 4
      A let out property for a period of atleast 300 days
 Exception 5
      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)
 Meaning
    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…
 Exceptions
    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

Assesses             Assets
Individual and Hindu cash in hand on the last moment of the
   Undivided           valuation date in excess of rs.
   families            50,000

                         Any amount not recorded in books of
any other person           account.
 Assets transferred by one spouse to another
  (Sec 4(I)(a)(1))
      Conditions.
         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.
      Other points
         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))

 Conditions
   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
  (sec 4(1)(a)(iv))
 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
Debt owned

From the aggregrate of all assets including deemed
  assets but not exempt assets, the debts owned
  by assesse are to be subtracted, subjec tto
  following conditions
 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-
 Step I
    Find out gross maintainable rent
 Step II
    Find out net maintainable rent(gross – municipal taxes
     and 15% of gross maintainable rent)
 Step III
    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
        house property
    Decision: the higher of above is taken as capitalised.
The rule is not applicable if the following conditions
   are satisfied.
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.
 Specified area.
   When the property is situated at metros, 60 % of the
    aggregate area.
   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
 Sum no.1
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
outside India)
Capital borrowed for             28,000
purchasing utensils of gold
outside India.
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
  assessment year2008-09
  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.
(construction not
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
                                               4,20,000 )
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.

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