CHAPTER - XIV - WEALTH-TAX

CHARGE OF WEALTH-TAX
14.1 Wealth tax is an annual tax like income tax. It is another type of direct tax
by which tax is imposed on individuals coming within its purview. Pensioners,
retired persons or senior citizens have not been accorded any special benefits
under this Act.
14.2 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 (HUF) and company at the rate of one per cent (1%) 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.
14.3 Wealth tax is an anti- abuse measure in the integrated tax system. It
ensures reporting of significant assets held by a tax payer. It is proposed that
Wealth Tax will be levied broadly on the same lines as provided in the Wealth Tax
Act, 1957. The DTC follows a similar approach of taxation of wealth as followed in
the Wealth Tax Act, 1957. Accordingly, it is proposed in the DTC that specified
"unproductive assets" will be subject to the wealth tax. However, it will be
payable by all taxpayers except non-profit organizations. The threshold limit and
rate of tax have been suitably calibrated in the context of overall tax rates to
provide an exemption limit of Rs. 1 crore and tax @1% on any amount in excess
of this limit.
14.4 On the issue of the reduction of the exemption limit, the Ministry in their
written replies stated that the exemption limit of Rs. 1 crore has been provided
so as to take care of persons in the lower income and net worth groups.
14.5 During evidence the Committee further sought to know about the reasons
for reduction of the exemption limit from proposed 50 crore to 1 crore for wealth
tax. In their reply to the said query, the Ministry in their written information
stated as under :
"When the threshold limit of Rs. 50 crore for applicability of wealth tax was
proposed, the tax was proposed to be levied on all assets including financial
assets and the tax rate proposed was @ 0.25%. Wealth tax is proposed as an
anti-abuse measure in an integrated tax system. It ensures the reporting of
significant assets held by a tax payer. The tax will be levied only on specified
assets. It does not include financial assets like shares and securities. Moreover
one house, a plot of land up to 500 sq. mts., commercial property and rented

properties are exempted from tax. As a result of this, a large number of assets
are left out of wealth tax. It was in this context that the threshold limit was
reduced from Rs. 50 crore to Rs. 1 crore. Under the existing law, wealth tax is
levied @ 1 % above threshold of Rs. 30 lakhs. Therefore, relief by way of increase
in threshold from Rs. 30 lakhs to 1 crore has already been provided."
14.6 With a view to making the tax regime progressive and to increase the
wealth tax revenue, the Committee suggest that wealth tax should be levied at
the rates as recommended in PART-I of the Report.
Proposed clauses in the DTC Bill, 2010
Clause 112 - Tax on net wealth
14.7 Clause 112 reads as under :
112. (1) Subject to the provisions of this Code, every person, other than a nonprofit organisation, shall be liable to pay wealth-tax on the net wealth on the
valuation date of a financial year.
(2) The wealth-tax shall be charged in respect of the net wealth referred to in
subsection(1), on the valuation date of a financial year at the rate specified in
Paragraph E of the Second Schedule in the manner provided therein.
(3) The liability to wealth-tax shall be discharged by payment of pre-paid taxes in
accordance with the provisions of this Code.
(4) The wealth-tax charged under this section shall be collected after allowing
credit or pre-paid taxes, if any, in accordance with the provisions of this Code.
Existing provision in the Wealth-Tax Act
14.8 Every individual, Hindu Undivided Family and company were liable to
wealth-tax as per section 3(1) of the Wealth-tax Act.
14.9 Indian Chamber of Commerce, Calcutta, Institute of Chartered Accountants
of India, Bombay Chartered Accountants' Society and Federation of Indian
Chamber of Commerce and Industry through their written memorandum
submitted to the Committee suggested as follows :
(i) At present schedule III of Wealth Tax Act provides the method to determine the
value of assets. Under DTC, such valuation rules will be notified by CBDT. It is
suggested that similar schedule III (as existing) may be made part of DTC itself.
(ii) Under the Wealth-tax Act, property held by a person under trust or other legal
obligation for any public purpose of charitable or religious nature was not
included in the net wealth. In the DTC, only NPOs are not subject to wealth-tax.
However, NPOs do not include religious trusts and therefore, religious trusts
become liable for wealth-tax. It is suggested that wealth tax should not be levied
on religious trusts.
(iii) As per clause 314(169), following organizations do not qualify to be a NPO-

(a) organisation established for the benefit of any particular caste or religious
community;
(b) organization which provides any benefit for the members of any particular
caste or religious community;
(c) organization established for the benefit of any of its member;
(d) Organization not actually carrying on the charitable activities during the
financial year.
The organizations of the type listed above should be specifically exempted from
the provisions of wealth tax.
(iv) Under the existing Wealth Tax Act, wealth tax is levied only on
individuals/HUFs and companies. Firms/LLPs are outside its purview. It is
suggested that the same position should continue under the DTC regime.
14.10 In response to the above said suggestions, the reply of the Ministry on
each suggestion is given as under :
(i) Taxation law should be such that it is not required to be amended often. The
rules for valuation may be needed to be changed often. Therefore they shall be
notified by the CBDT.
(ii) & (iii) A public religious trust would be covered in the definition of Non Profit
Organisations (NPOs) and therefore exempt from wealth-tax as clause 112 (1)
provides that every person other than a NPO shall be liable to pay wealth tax. .
Schedule 7, para 39 also exempts income of a public religious trust. Other
religious trusts set up for benefit of a particular religion and not held for public
purpose, do not merit such exemption.
Similarly, the trusts set up for a particular caste or only for its members or not
actually carrying on any charitable activity are like any other entity and,
accordingly, do not deserve any special dispensation as these are not existing for
public purpose rather with a private motive.
(iv) Holders of substantial economic resources in form of accumulated wealth
should not desist from paying a small sum as wealth-tax. Firms and LLPs cannot
be categorized differently from companies in this respect.
14.11 The Committee note that the clause provides for levy of wealth tax on all
assessees except non-profit organisation and definition of NPO expressly exclude
trusts/institutions established for a particular caste or religious community
thereby making them liable to Wealth Tax which are otherwise exempt under the
present Wealth Tax Act, 1951 for the last five decades. The Committee,
therefore, recommend that wealth tax should not be levied on particularly
religious trusts which are doing significant charitable work, as bringing such
trusts under wealth tax would affect public welfare activities undertaken by
them.

Clause 112 (4)

14.12 Clause 112 (4) reads as under :
112(4) 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.
Existing provision in the Wealth-Tax Act
14.13 There is no such existing provision in the Wealth Tax Act.
14.14 On this clause, Bombay Chartered Accountants' Society in their written
memorandum suggested as under :
"DTC proposes to levy wealth tax on deposit in a bank located outside India,
interest in a foreign trust and any equity or preference shares held by a resident
in a controlled foreign company, which were hitherto not liable to WT. Therefore,
equity demands that wealth tax paid on such assets in foreign country should
also be available as foreign tax credit".
14.15 On this suggestion, the Ministry in their written replies stated as under :
"Bank deposits located outside India, in case of an individual or a Hindu
undivided family, or any interest in a foreign trust or any other body located
outside India (whether incorporated or not) other than a foreign company, have
been included in the list of items subjected to wealth-tax as a reporting
requirement and in order to prevent tax evasion.
Foreign tax credit in respect of wealth tax paid outside India is available under
some of the DTAAs signed by India. The incidence of wealth tax is nominal".
14.16 The Committee are in agreement with the Ministry that the incidence of
levy of wealth tax in respect of the deposit in a bank outside India is nominal and
Foreign Tax Credit thereto is available under some of the DTAAs signed by India.
Clause 113 - Computation of net wealth
14.17 The clause relates to computation of net wealth. Wealth-tax is to be
charged on the net wealth on the valuation date. The value of assets and
liabilities is to be taken on the valuation date i.e. market value is to be charged
to wealth tax.
14.18 On this clause, Institute of Chartered Accountants of India (ICAI) in their
written suggestions stated as follows :
"Basic purpose of wealth-tax being to extract information rather than raising
revenue, it is suggested that the tax may be charged on the net wealth valued at
cost price rather than market price. However, if the same is not possible the
assessee should be required to disclose the cost of the specified asset along with
the market value".

14.19 On this suggestion, the reply of the Ministry is given as under :

"The case for levy of wealth tax is based on several factors and purpose is not
just collection of information. Wealth-tax was introduced as a measure against
accumulation of wealth in certain hands. This was levied to ensure that resources
are not concentrated in a few hands rather shared with the masses. Besides, cost
price of the assets is not a correct indicator of actual worth of the person.
As regards disclosure of cost-price along with market value, the suggestion would
be examined at the time of prescribing format of tax returns".
14.20 The Committee endorse the view of the Ministry that for computation of
net wealth, cost price of the assets is not a correct indicator of actual worth of
the person. The Committee would expect that as agreed with the suggestion
regarding disclosing cost price of the specified assets alongwith the market value
by the assessee, appropriate modification to this effect be made and suitably
incorporated in the format of tax returns. Clause 113 (1)
14.21 Clause 113 (1) reads as under :
113. (1) The net wealth of a person referred to in sub-sections (1) and (2) of
section 112 shall be the amount computed in accordance with the formula - A-B
Where
A = the aggregate of the value on the valuation date, of all the specified assets,
wherever located, belonging to the person referred to in this section, computed
in accordance with the provisions of sub-section (5);
B = 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.
14.22 Suggestion as received from Institute of Chartered Accountants of India
(ICAI) on this clause is as under :
"Presently the Board's circular 663 dt.28.09.93 clarifies that wealth-tax payable
shall not be taken as a debt incurred in relation to assets. Thus wealth-tax
payable cannot be included under Item B in the formula.
For clarity purpose, the item 'B' should be reworded to exclude specifically
"wealth tax" from "debts owed by the person, which have been incurred in
relation to the specified assets".
14.23 In their reply to the above said suggestion, the Ministry in their written
statement stated that the said suggestion will be considered.
14.24 The Committee would expect the Ministry to suitably modify item 'B' as
suggested in the formula for computing net wealth to exclude specifically 'wealth
tax' from 'debts owned by the person which have been incurred in relation to the
specified assets' for the purpose of clarity.
Clause 113 (2), 113 (3)(c) and 314(284)

14.25 Clause 113 (2) reads as under :

113 (2) The specified assets referred to in sub-section (1) shall be the following,
namely :(a) any building or land appurtenant thereto (hereinafter referred to as "house"),
used for any purpose;
(b) any farm house situated within twenty-five kilometers from local limits of any
municipality or municipal corporation (by whatever name called) or a
Cantonment Board;
(c) any urban land;
(d) motor car, yacht, boat, helicopter and aircraft other than those used by the
assessee in the business of running them on hire or as stock-in-trade;
(e) jewellery, bullion, furniture, utensils or any other article made wholly or partly
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 stockin -trade;
(f) archaeological collections, drawings, paintings, sculptures or any other work
of art;
(g) watch having value in excess of fifty thousand rupees;
(h) cash in hand, in excess of two lakh rupees, of individuals and Hindu undivided
families;
(i) 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;
(j) any interest in a foreign trust or any other body located outside India (whether
incorporated or not) other than a foreign company; and
(k) any equity or preference shares held by a resident in a controlled foreign
company, as referred to in the Twentieth Schedule.
Clause 113 (3)(c)
14.26 Clause 113 (3) (c) reads as under :
The specified assets referred to in sub-section (2) shall not include the following,
namely:(c) the value of the assets located outside India, if the person is a non resident;
Clause 314 (284)
14.27 Clause 314 (284) describing the meaning of 'urban area' is also related to
the clause 113.

Clause 314 (284) reads as under :

314. In this Code, unless the context otherwise requires (284) "urban area" means(a) an area within the jurisdiction of a municipality (whether known as a
municipality, municipal corporation, notified area committee, town area
committee, town committee or by any other name) or a cantonment board and
which has a population of more than ten thousand according to the last
preceding census of which the relevant figures have been published before the
first day of the financial year; or
(b) an area within such distance from the local limits of any municipality or
cantonment board referred to in sub-clause (a), as the Central Government may
having regard to the extent of, and scope for, urbanisation of that area and other
relevant considerations, specify in this behalf by notification.
14.28 Existing provision in the Wealth-Tax Act
2(ea) "assets", means - (i) any building or land appurtenant thereto (hereinafter
referred to as "house"), whether used for residential or commercial purposes or
for the purpose of maintaining a guest house or otherwise including a farm house
situated within twenty-five kilometres from local limits of any municipality
(whether known as Municipality, Municipalilty Corporation or by any other name)
or a Cantonment Board, but does not include (1) a house meant exclusively for residential purposes and 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 five lakh rupees;
(2) any house for residential or commercial purposes which forms part of stockin- trade;
(3) any house which the assessee may occupy for the purposes of any business
or profession carried on by him;
(4) any residential property that has been let-out for a minimum period of three
hundred days in the previous year;
(5) any property in the nature of commercial establishments or complexes; (ii)
motor cars (other than those used by the assessee in the business of running
them on hire or as stock-in-trade); (iii) jewellery, bullion, furniture, utensils or any
other article made wholly or partly of gold, silver, platinum or any other precious
metal or any alloy containing one or more of such precious metals :
Provided that where any of the said assets is used by the assessee as stock-intrade, such assets shall be deemed as excluded from the assets specified in this
subclause; (iv) yachts, boats and aircrafts (other than those used by the
assessee for commercial purposes); (v) urban land; (vi) cash in hand, in excess of

fifty thousand rupees, of individuals and Hindu undivided families and in the case
of other persons any amount not recorded in the books of account.
Explanation 1 : For the purposes of this clause, - (a) "jewellery" includes - (i)
ornaments made of gold, silver, platinum or any other precious metal or any
alloy containing one or more of such precious metals, whether or not containing
any precious or semiprecious stones, and whether or not worked or sewn into
any wearing apparel; (ii) precious or semiprecious stones, whether or not set in
any furniture, utensils or other article or worked or sewn into any wearing
apparel; (b) "urban land" means land situate (i) in any area which is comprised within the jurisdiction of a municipality
(whether known as a municipality, municipal corporation, notified area
committee, town area committee, town committee, or by any other name) or a
cantonment board and which has a population of not less than ten thousand
according to the last preceding census of which the relevant figures have been
published before the valuation date; or
(ii) in any area within such distance, not being more than eight kilometers from
the local limits of any municipality or cantonment board referred to in subclause
(i), as the Central Government may, having regard to the extent of, and scope
for, urbanisation of that area and other relevant considerations, specify in this
behalf by notification in the Official Gazette, but does not include 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 or the land occupied by any
building which has been constructed with the approval of the appropriate
authority or any unused land held by the assessee for industrial purposes for a
period of two years from the date of its acquisition by him or any land held by
the assessee as stock-in-trade for a period of five years from the date of its
acquisition by him.
14.29 On this clause, ICAI suggested as follows :
Assets like urban land, archaeological collections, drawings, paintings, sculptures
or any other work of art, watches of value exceeding 50000 are proposed to be
charged to wealth-tax even if they are held as stock-in trade.
However, for jewellery, bullion, furniture, utensils, motor car, yacht, boat,
helicopter and aircraft such exclusion has been provided for. The exclusion for
stock-in-trade items should be provided for all assets charged to wealth-tax.
14.30 The Ministry in their written replies to the above said suggestions stated
that the suggestions will be considered.
14.31 The Committee note that in the proposed DTC Bill, certain items are to be
charged to wealth tax even if they are held as stock-in-trade whereas exclusion
has been provided for other items. In view of this and as agreed to by the
Ministry, the Committee desire that all assets charged to wealth tax should be
provided exclusion for stock-in-trade items and necessary modifications be made
in the relevant clause accordingly.

14.32 On this clause, FICCI, Bombay Chartered Accountants Society and Indian
Chamber of Commerce, Calcutta in their written memorandum suggested as
follows :
Urban land [clause 113(2)(c)] should be defined in clause 314 to avoid any
litigation. Also exemptions provided in the present Act should also be provided
for.
14.33 Indian Chamber of Commerce, Calcutta has also suggested that specific
provision may be made in DTC that no wealth tax will be levied on urban land
which is used for industrial purposes.
14.34 The Ministry in their written replies to the above said suggestions stated
that these suggestions will be considered.
14.35 As suggested and agreed to by the Ministry, the Committee would expect
exemptions provided in the present Act should continue in the new DTC Bill and
recommend to make suitable modifications accordingly.
14.36 In their written memorandum submitted to the Committee, ASSOCHAM on
this clause suggested as follows :
"As per section 6 of the WT Act, foreign citizens qualifying to be resident and
ordinarily resident would not be charged for WT for assets located outside India.
DTC does not carry such exemption causing hardship to foreign citizens coming
to India and becoming a resident of India. Therefore, in the case of Foreign
citizen becoming resident in India, the net assets located outside India should
not be charged to wealth tax".
14.37 One more suggestion as received from an expert on this clause is as under
:
"Sec 113(3) deals with specified assets which shall not be included and clause (c)
states "the value of the assets located outside India, if the person is a nonresident." Thus foreign assets are excluded only in case of non residents. The
category of 'non-citizen' is not mentioned in the exception clause. In this sense
there is an unintended tax on foreign assets of foreign citizens. This is likely to
affect numerous foreign citizens who are employed by both Indian companies as
also foreign companies who have made substantial investments in India. It is also
likely to affect foreign direct investments by persons of Indian origin who are
NRIs as well. This unintended effect of the proposed piece of legislation needs to
be corrected. In this connection the following amendment is suggested:Section 113(3)(c) to read as follows :
(c) the value of assets located outside India, if the person is a non resident or is
not a citizen of India".
14.38 The Ministry in their replies to the said suggestions stated that it will be
considered.

14.39 The Committee find that as per existing Wealth Tax Act, foreign citizens
qualifying to be resident and ordinarily resident would not be charged for wealth
tax for assets located outside India. The Committee feel that as suggested and
agreed to by the Ministry, in the case of foreign citizens becoming resident in
India, the net assets located outside India should not be charged to wealth tax as
this trend would hit foreign citizens in employment with both Indian and foreign
companies which have invested in India. The Committee, therefore, desire that
necessary amendments be made to sub-clause (3)(c) of Clause 113.
14.40 ASSOCHAM and Bombay Chamber of Commerce and Industry in their
written memorandum suggested as follows :
"Shares held by a resident in CFC are chargeable to WT. There is no rationale for
the same when shares held in Indian company are not subject to WT. These
provisions should be deleted. Also it should be clarified that wealth tax would not
be levied multiple times in case of multi-tier CFCs.
14.41 The Ministry in their written replies to the said suggestion stated as
follows:
"This provision has been included as a reporting system and as a measure to
check tax evasion. Hence it is a measure to elicit information regarding interest
in a CFC. Further, the income of CFC being passive in nature, the share in CFC
can be categorized as an unproductive investment, and therefore, chargeable to
WT. However, for a company to be categorized as CFC, there are strict
provisions. As far as issue of multi-level CFCs is concerned, the method of
valuation of interest in such CFCs shall be prescribed through rules.
14.42 The Committee observes that general scheme underlying the levy of
wealth tax is that it is levied on unproductive investment. The equity or
preference shares in a CFC cannot be regarded as unproductive as these assets
are earning income on which income tax is levied. So, the Committee
recommend that shares held in a CFC should be excluded from the scope of
wealth tax.
Clause 114 - Net wealth to include certain assets
14.43 The clause provides for situations where certain specified assets shall be
deemed to be belonging to a person and included in his net wealth.
14.44 Clause 114 reads as under :
114. (1) The specified assets referred to in sub-section (2) of section 113 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)(a) 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;

(b) by a minor child, not being a person with disability or person with severe
disability, of such individual;
(c) by a person to whom such asset has been transferred by the individual,
directly or indirectly, otherwise than for adequate consideration for the
immediate or deferred benefit of the individual or his spouse;
(d) 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;
(e) by a person, not being a trust, to whom such asset has been transferred by
the individual, if the transfer is revocable during the life time of the person; and
(f) by a Hindu undivided family by way of any converted property.
(2) The provisions of sub-section (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
clause (b) of subsection (1) of section 9 and which are held by him on the
valuation date.
(3) In this section,(a) the asset referred to in clause (b) of sub-section (1) shall be included in the
net wealth of(i) the parent who is the guardian of the minor child; or
(ii) the parent whose net wealth (excluding the assets referred to in that clause)
is higher, if both the parents are guardians of the child;
(b) a transfer shall be deemed to be revocable if(i) 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
(ii) 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;
(c) 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;
(d) the holder of an impartible estate shall be deemed to be the individual owner
of all the properties comprised in the estate; and
(e) 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.

14.45 Existing provision in the Wealth-Tax Act

4(1), 3rd proviso.
Provided also that where the assets held by a minor child are to be included in
computing the net wealth of an individual, such assets shall be included, - (a)
where the marriage of his parents subsists, in the net wealth of that parent
whose net wealth (excluding the assets of the minor child so includible under this
subsection) is greater; or
(b) where the marriage of his parents does not subsist, in the net wealth of that
parent who maintains the minor child in the previous year as defined in section 3
of the Income-tax Act, and where any such assets are once included in the net
wealth of either parent, any such assets shall not be included in the net wealth of
the other parent in any succeeding year unless the Assessing Officer is satisfied,
after giving that parent an opportunity of being heard, that it is necessary so to
do.
14.46 Bombay Chartered Accountants' Society on this clause suggested as
follows :
"In a situation covered under clause (ii), where both parents are guardian of the
child, the clause should provide that where any wealth is once included in the
total wealth of either parent, then in the succeeding year also the same should
be included in the wealth of the same parent. This provision would be in line with
the existing provision contained in the third proviso to sec 4(1) of the Wealth Tax
Act, 1957".
14.47 While accepting the above said suggestion the Ministry in their written
replies stated as follows :
This will be considered in line with the provisions of clause 9(6) of the DTC, 2010
relating to inclusion of income of a minor in the hands of his parents.
14.48 The Committee desire that as agreed to by the Ministry the suggestion
regarding any wealth once included in the total wealth of either parent in case
where both are guardians, the same should be included in the wealth of the
same parent in the succeeding years. Suitable amendments may be incorporated
in the Bill so as to be in line with existing provisions contained in the Wealth Tax
Act, 1957.