OBLIGATIONS UNDER THE WEALTH TAX ACT
Besides Income-tax, there is an other direct tax act namely Wealth
Tax Act, 1957 which imposes tax, inter alia, on individuals coming
within its purview. Pensioners, retired persons or senior citizens
have not been accorded any special benefits under this Act. Wealth
tax is an annual tax like income tax. The important provisions concerning
the Act are mentioned hereinafter.
1. Wealth Tax
Wealth tax is charged for every assessment year in respect of net
wealth of corresponding valuation date, inter alia, on every individual
Hindu Undivided Family and company at the rate of one per cent of
the amount by which net wealth exceeds Rs. 15 lakhs. "Valuation
Date" is 31st March immediately preceding the assessment
year [S.2(a)], Assessment year, as under the Income-tax Act, means
a period of 12 months commencing from 1st day of April
every year falling immediately after the valuation date [S.2(d)].
Net wealth means taxable wealth. It means the amount by which the
aggregate value of all assets (excluding exempted assets) belonging
to the assessee on the valuation date including assets required
to be included in the net wealth, is in excess of the aggregate
value of all debts owed by the assessee on the valuation date which
have been incurred in relation to the taxable assets.
Incidence of Wealth Tax
Incidence of tax in the case of an individual depends upon his
residential status and nationality. Residential status is decided
as per the provisions of the Income-tax Act (Chapter I Supra).
The scope of liability to wealth tax is as follows :
- In the case of an individual who is a citizen of India and resident
in India, a resident—HUF and company resident in India;
Wealth tax is chargeable on net wealth comprising of
- All assets in India and outside India;
- All debts in India and outside India are deductible in
computing the net wealth.
- In the case of an individual who is a citizen of India but
non-resident in India or not ordinarily resident in India, HUF,
non-resident or not ordinarily resident in India and a company
non-resident in India;
- All assets in India except loan and debts interest whereon
is exempt from income-tax under section 10 of the Income-tax
Act are chargeable to tax.
- All debts in India are deductible in computing the net wealth.
- All assets and debts outside India are out of the scope
of Wealth Tax Act.
- In the case of an individual who is not a citizen of India
whether resident, non-resident or not ordinarily resident in India:
Same as in (b):
The credit balance in a Non-resident (External) Account is exempt
from wealth tax provided the depositor is a person resident outside
India as defined in the Foreign Exchange Regulation Act, 1973.
Wealth Tax is levied on the net wealth of a person as on a particular
date. This date is known as valuation date. According to section
2(Q) the valuation date is the last day of the previous year relevant
to the assessment year. Hence, valuation date is March 31, immediately
proceeding the assessment year.
The assets liable to wealth tax as per the definition given in
section 2(ea) of the Wealth Tax Act are as under :
(1) Any building or land appurtenant thereto which shall include
- commercial buildings;
- residential buildings;
- any guest house;
- a farm house situated within 25 kilometres from the local limits
of any municipality (whether known as Municipality, Municipal
Corporation or by any other name) or a Cantonment Board.
However, the following buildings will not be included to assets:
- a house meant for residential purposes which is allotted by
a company to an employee or an officer or a director who is in
whole time employment, having a gross annual salary of less than
- any house for residential or commercial purposes which forms
part of stock-in-trade;
- any house which the assessee may occupy for the purposes of
any business of profession carried on by him.
The following buildings shall also not be an asset w.e.f. A.Y.
- any residential property that has been let out for a minimum
period of 300 days in the previous year.
- any property in the nature of commercialestablishments
(2) Motor Cars (excluding those used by the assessee in
the business of running them on hire or as stock-in-trade).
(3) Jewellery, bullion, furniture, utensils or any
other, article made wholly or partly of gold, silver, platinum or
any other previous metal or any alloy containing one or more of
such precious metals (excluding those held as stock-in-trade by
the assessee). Jewellery includes:
- ornaments made of gold, silver, platinum or any other precious
metal of any alloy containing one or more of such precious metals,
whether or not" containing any precious or semi-precious
stones, and whether or not set in any furniture, utensils or other
article or worked or sewn into~any wearing apparel;
- precious or semi-precious stones, whether or not set in any
furniture, utensils or other articles or worked or sewn into any
For the removal of doubts it has been clarified by
explanation 2 to section 2(ea) that the term jewellery does not
include the Gold Deposit Bonds issued under the Gold Deposit Scheme,
1999 notified by the Central Government.
(4) Yachts, boats and aircrafts (excluding those used
by the assessee for commercial purposes).
(5) Urban land; "Urban Land" means land
- in any area which is comprised within the jurisdiction of a
local authority and which has a population of not less than ten
thousand according to the last proceeding census of which the
relevant figures have been published before the valuation date;
- any area within such distance, not being more than eight kilometres
from the local limits of a local authority as the Central Government
may, having regard to the extent, and scope for urbanisation of
that may, and other relevant considerations, specify in this behalf
by notification in the Official Gazette.
However, the following urban land shall not be included in assets;
- land on which construction of a building is not permissible
under any law for the time being in force in the area in which
such land is situated;
- land occupied by any building which has been constructed with
the approval of the appropriate authority;
- any unused land held by the assessee for industrial purposes
for a period of two years from the date of its acquisition by
- land held by an assessee as stock-in-trade for a period of five
years from the date of its acquisition by him. (Ten years w.e.f.
Note: Agricultural land situated in urban area is not liable to
(6) Cash in hand;
- In case of an individual and HUF cash in hand in excess of Rs.
50,000/- shall be included in assets.
- In cash of any other person cash in hand not recorded in the
books of account shall be included in assets.
In computing the net wealth of an assessee, the following assets
are included as belonging to the assessee by virtue of section 4(l)(a)
of the Wealth Tax Act, 1957.
- Assets transferred by one spouse or another.
- Assets held by minor children.
Whether the assets are held by a physically or mentally handicapped
minor child (specified in section SOU of the Income Tax Act) such
assets will not be clubbed with the net wealth of the parent.
In such a case the net wealth of the handicapped minor child shall
be determined separately and assessee in his hands.
- Assets transferred to a person or an Association of Persons
for immediate or deferred benefit of the transferrer, his
or her spouse without adequate consideration.
- Assets transferred under revocable transfer.
- Assets transferred to son's wife.
Assets transferred to a person or Association of
Persons for the benefit of son's wife.
The following assets are totally exempt from Wealth Tax (Section
- Property held under a trust or other legal obligation for any
public purpose of a charitable or religious nature in India subject
to the satisfaction of the stipulated conditions;
- Coparcenary interest in a HUF property;
- One residential building belonging to a former Ruler;
- Former Ruler's jewellery (excluding his personal jewellery)
which has been recognized as a heirloom by the Central Government
before 1.4.1957 or by the CBDT after that date;
- Assets belonging to the Indian repatriates for 7 years on fulfillment
of the conditions prescribed;
- One house or part of a house (with effect from 1.4.1999
one house or part of a house or a plot of land) belonging to an
individual or HUF is exempt from Wealth Tax.
Wealth tax is levied on the 'net wealth' which means that from
the aggregate of all assets (including deemed assets but excluding
exempt assets) the value of debts owed on the valuation date shall
be deducted subject to the satisfaction of the following two conditions
- Only debts which are 'owed' on the valuation date are deductible.
- Debts should have been incurred in relation to those assets
which are included in the net wealth of the assessee.
Broadly, a debt could be defined as an obligation to pay a liquidated
or certain sum of money. A sum which may or may not become due or
the payment of which depends upon contingencies which may or may
not happen is not a debt. (See Sardar C.S. Angre v. CWT (1968) 69
ITR 336 (MP).
Wealth Tax Liability—Whether a Debt Owed?
Wealth tax liability is not deductible in computing the net wealth
liable to tax. This position has been made clear by the amendment
of section 2(m) with effect from the assessment year 1993-94. Liability
under the Wealth-tax Act has been considered as a 'debt owed' by
the assessee incurred in relation to the assets taxable under the
Wealth-tax Act. Such a liability has been considered to be the personal
liability of the assessee and is not a debt incurred but a debt
created by statute. Hence is deduction is not permissible (See CBDT's
circular No. 663 dated 28th September, 1993).
Valuation of Assets
For the purpose of Wealth-tax the value of any asset (other than
cash) shall be its value as on the valuation date determined in
the manner laid down in Section 7(2) and in Schedule III to the
Wealth Tax Act.
Return of Wealth Tax
Every person is requaired to file a return of net wealth in Form
'A' if his net wealth or net wealth of any other person in respect
of which he is assessable under the Act on the valuation date is
such an amount as to render ' him liable to wealth tax. The dates
of filing the return are the same as under the Income-tax Act for
filing returns. Where wealth tax is payable on the basis of return
to be furnished, the assessee is required to pay the tax before
filing of the return and such return is to be accompanied by the
proof of payment.
For the assessment year 2001-2002, 'R' an Indian National and resident
and ordinary resident in India furnishes the following particulars
regarding his assets and liabilities.
||Residential House outside India
||Jewellery in India
||i) For residential house outside India
||ii) For acquiring jewellery
||Computation of taxable wealth :
||Jewellery in India
||Less: Debt owed concerning jewellery
Net value of jewellery
||Property outside India
||Less : Debt owed
Net value of property
||Total net wealth
In cases of non-resident or resident but not ordinarily resident
or a foreign national who is a non-resident, no wealth tax would
be leviable on property outside India. In their cases, wealth-tax
would be leviable on a sum of Rs. 45,00,000 lakhs only.