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Under the IT laws in India, individuals and enterprises are required to pay different types of taxes . While most taxpayers are generally concerned about income tax, the wealth tax is another type of tax one should know about as it applies to several taxpayers.Just like filing income tax returns, taxpayers who pay wealth tax are also required to file returns on their wealth tax. Take a look at what this wealth tax is, how to file the tax returns, and more-
1. What is Wealth Tax?
Wealth tax is a type of tax that is paid on the net worth or the wealth assimilated by individuals, enterprises, and even HUFs.Wealth Tax assets include the following:
- Bullions, ornaments, jewellery, and other precious metals
- Land or buildings apart from one house property or plot of land with a total size of less than 500 square metres
- Cash held above Rs.50,000
- Automobiles, motors, yachts, aircraft and boats
Note that investments such as shares and mutual funds are exempt from wealth tax. The tax is calculated as per the market value of the assets on the valuation date, 31st March.
2. What is the Wealth Tax Rate?
If the total value of the assets is more than Rs. 30 lakhs, a wealth tax of 1% would apply to the total value of the assets. If you are liable to pay wealth tax, you also need to file the returns just like filing regular income tax returns .Form-BA is used for filing returns on wealth tax. Even the dates for filing returns on wealth tax is the same as the regular income tax returns filing date.
3. How to File Returns on Wealth Tax?
Individuals, enterprises, and HUFs can use Form-BA for filing wealth tax returns. The returns can be filed with the IT circle or ward applicable to the taxpayer. The due date for filing returns on wealth tax is 31stJuly of the following FY.For instance, the assets would be evaluated on 31stMarch 2019, and the returns on the wealth tax should be filed before 31stJuly 2020.
4. What are the Documents Required to File Wealth Tax Returns?
The valuation of the assets is done on 31st March based on Schedule III of the Wealth Tax Act. The document used for calculating the valuation should be attached to Form-BA when filing returns.Below is a list of the most necessary documentation you will need to prepare your Income Tax Return for AY 2022-23:
- Aadhaar Card
- PAN Card
- Month-wise salary slips.
- Form 16 or Salary Certificate
- Form-16A/ Form-16B/ Form- 16C
- Bank Statement/Passbook
- Bank Account Details
- Form 26AS
- Evidence or proof of Investment (Investments and deductions that can be claimed under sections sections 80TTA , 80D, 80C, 80E, etc.)
- Interest Income and Other Interest Certificates
- Home Loan Statement
- Details of Investment in Unlisted Shares
- Capital Gains on Property, mutual funds , and stocks
- Foreign Income/Dividend Income
- Rental Income
It is also possible that the tax department would ask for additional documents to support your calculation.
5. Should NRIs Pay Wealth Tax?
Yes, even NRIs are required to pay wealth tax and file returns but only on the assets they have or own in India. All the assets outside of India would not be considered for calculating the total wealth tax liability of the NRI. Also, under Section 22 of the Wealth Tax Act, it is not mandatory for the NRIs to be physically present to file wealth tax returns . Any authorised agent can file returns on their behalf.
Filing Wealth Tax Returns
If you have unproductive assets worth more than Rs. 30 lakhs, you are liable to pay wealth tax and also file returns for the same. If you have only paid wealth tax but not filed the returns, you will be liable to pay the penalty at the rate of 1% for every month of delay.So, pay the applicable wealth tax and file the returns on time to avoid paying any penalty. Working with a professional tax consultant is highly recommended.Ready to make the most of your money? Start your tax planning journey now!
FAQS - FREQUENTLY ASKED QUESTIONS
Who is eligible for wealth tax ?
Individuals, companies, and HUFs are all subject to wealth tax. Indians must pay wealth tax on their internationally owned assets; however, NRIs are subject to paying wealth tax for assets kept in India.
What is the exemption limit for wealth tax ?
India's wealth tax exemption limit is currently Rs. 30 lakhs. Thus, everyone with a net worth below Rs 30 lakh is exempt from wealth tax. However, this limit does not apply to trusts, companies or firms. Wealth tax is levied at the rate of 1% on an individual's net worth exceeding Rs 30 lakh.
What are the types of wealth tax ?
In India, there are two forms of wealth taxes: indirect and direct. Direct wealth taxes are placed on a person's income, whereas indirect taxes are imposed on goods and services purchased.
What is the difference between income tax and wealth tax ?
The main difference between income tax and wealth tax in India is that income tax is levied based on income, while wealth tax is levied based on net worth. Hindu Undivided Families, individuals, firms, companies, and other associations of persons or groups of individuals are subject to income tax. However, wealth tax is exclusively charged to individuals, companies, and Hindu Undivided Families.
What is the objective of wealth tax ?
Wealth tax is aimed at reducing wealth inequality. The major goal is to narrow the income gap between wealthy and poor people.
How does a wealth tax work ?
Wealth tax is calculated based on the individual's net worth, which is calculated by subtracting the individual's liabilities from the value of their assets. Assets exempt from the wealth tax include jewellery, personal effects, and certain property types. However, all other assets, including real estate, are subject to tax.
Wealth tax would be levied on any assets bought at the end of a fiscal year because it is based on asset valuation as of March 31. The wealth tax, however, would not apply to assets sold over the year. Notably, if the taxpayers had already paid wealth tax in another country, some Double Taxation Avoidance Agreements (DTAAs) in the country provided them with relief from wealth tax.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
