delegate copy - practical issues in wealth tax

8/7/2019 Delegate Copy - Practical Issues in Wealth Tax

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CA. Divakar Vijayasarathy


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` Introduction

` Scope and Purpose

` Computation

` Taxable Assets` Practical Issues:

Taxability of Assets

Indian Repatriates

Valuation of Assets Challenges

` Wealth tax planning

` Filing ofWealth tax returns


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For the Financial year 2008-09:

- Estimated tax collection of Rs 400 crores

- Estimated tax collection cost of Rs 174 crores

Projections for the Financial 2009-10:

- Projected tax collection of Rs 425 crores

- Projected tax collection cost of Rs 216 crores

**Source: The Economic Times dated 8thApril 2009

For every rupee spent, the Government earns Rs 1.97 of wealth tax.


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` For every Re spent, the Government collects Rs

60 of income tax (all categories)

` For every Re spent, the Government collects Rs

701 of corporate income tax` Cost of collection (Direct Taxes) in other countries:

Britain : 1.53%

Germany: 2.35%

Australia : 1.15%


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Note:

` In Austria, Denmark, Germany, Finland, Iceland,

Spain and Luxembourg wealth tax was abolished

during the last decade

` The concept ofWealth tax does not exist in

Belgium and Great Britain.

Nomenclature Country

Solidarity tax onWealth France

Wealth tax Greece, Norway, Switzerland and

Netherlands

Property tax US


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` Conceptually wealth tax is a levy on unproductive

assets held by an assessable person.

` For the purpose of wealth tax the taxable persons

can be broadly classifed as: Direct Assessees: Persons directly assessable to

wealth tax

Indirect Assessees: Persons indirectly assessable to

wealth tax


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Direct Assessees

` Individual

` HUF

` Company

Indirect Assessees

` Firm

` AoP : Sec 21AA

` Trust (which is not into

religious or charitable

activities): Sec 21A


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Assessee Residential Status Assets in

India

Debts in

India

Assets

outside India

Debts outside

India

Individual Citizen

of India

Resident and ordinary resident Included Deductible Included Deductible

Individual any

other case including

foreign national who

is a resident and

ordinary resident

Indian Citizens: Non resident or not

ordinary resident

Foreign Nationals: Resident or non

resident.

Included Deductible Not included Not Deductible

HUF

Resident and ordinary resident Included Deductible Included Deductible

Non resident or not ordinary

resident

Included Deductible Not included Not Deductible

Company

Resident Included Deductible Included Deductible

Non Resident Included Deductible Not included Not Deductible


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` Debts owed inIndia: If it is repayable inIndia or

If the debtors is inIndia

`

Assets outside India are not assessable to wealthtax in the case of foreignnationals

` Debts incurred outside India in relation to assets

located inIndia shall be deductible for all

categories of assessees.


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As per CircularNo 3 dated 28.09.1957 as amended by CircularNo

392 dated 24.08.1984

Asset When located in India

Tangible Immovable property If the property lies inIndia

Rights or interests in or overimmovable property (otherwise than

by way of security)

If the immovable property lies inIndia

Benefits arising out of immovable

property

If the immovable property lies inIndia

Rights or interests in or over amovable property (otherwise than by

way of security)

If the movable property lies inIndia.Goods on high seas cannot be

considered to be inIndia CWT vs

Consolidated Pneumatic Tools Co Ltd

Supreme Court. (1971) 81 ITR 752

Aircrafts/ Boats/Yachts If it is registered inIndia


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` Company registered u/s 25 of the Companies Act

(non profit organizations)

` Co operative society

` Social club` Political party

` Mutual fund u/s 10(23D) of the Income tax Act


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Value of assets as at the Valuation date

Add DeemedWealth u/s 4

Less Exempted Assets u/s 5

Gross WealthLess Debts incurred in relation to assets

Taxable wealth

Less Exemption limit 15 lacs

Net wealth


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` 1% on taxable wealth in excess of Rs 15 lacs

` Exemption limit of Rs 15 lacs is applicable to all

category of assessees

` No surcharge levy on wealth tax

` No cess levy on wealth tax


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` Buildings

` Cash in Hand

` Boats, Yachts & Aircrafts

`

Jewellery, bullion, furniture, utensils etc made ofprecious metals

` Urban Land

` Motor Cars

Please Refer to Annexure 1 for detailed

explanation on taxable assets.


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Includes:

` Any building or land appurtenant thereto whether

used for residential, commercial, guest house

etc` Any farm house if situated within 25 kms from

local limits of any municipality or cantonment

board


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Excludes:` House meant exclusively for residential purposes occupied by an

employee/ officer/director ofa company, having a gross salary of less than

Rs 5 lacs

` House held as stock in trade by the assessee

` Any house occupied by the assessee for the purpose assessees business

or profession

` Any residential property let out for less than 300 days in the previous

year

` Any property in the nature of commercial establishments or complexes


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` Includes all motor cars whetherIndian orForeign

` Excludes:

Cars held as stock in trade Cars used by the assessee in the business of running

them on hire


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` Includes jewellery, bullion, furniture, utensils or

any other article made wholly or partly ofgold,

silver, platinum or any other precious metal or any

alloy containing one or more of such preciousmetal

` Excludes assets held as stock in trade


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` Includes all categories of Yachts, boats and

aircrafts

` Excludes those yachts, boats and aircrafts usedforcommercial purposes


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Urban land means land situated:

` In any municipality or cantonment which has a

population of not less than 10,000 as per latestavailable census prior to the valuation date.

` Within 8 kms from an municipality or cantonment


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Excludes:

` Land on which construction is not possible

`

Land on which building has been constructed withapproval of the appropriate authority

` Unused land held by the assessee for industrial

purposes for a period of 2 years from the date of

acquisition

` Land held as stock in trade for a period of 10 years from

the date of acquisition


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` Assets transferred to spouse /sons spouse for

inadequate consideration

` Assets transferred to minor child

` Assets transferred to any AoP/ person forinadequate consideration - for the benefit of the

individual /spouse/sons wife

` Revocable transfer of assets

` Converted property of an HUF` Holder of an impartible estate


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` Property held under trust for charitable and religiouspurposes inIndia

` Interest in the coparcenary property of the HUF

` One official residence of a Ruler

` Heirloom jewellery of an erstwhile Ruler` Money and assets brought into India by citizen ofIndia

or persons ofIndian origin for 7 assessment years

` One house or part of a house or plot of land not

exceeding 500 sq mts for an individual or HUFassessee


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` Ships

` Farm house located beyond 25 kms from any

municipality or cantonment

` Cars owned by cab operators and tourist cars` Antique furniture not containing any precious or

semi precious stones or metals

` Paintings , sculptures and other similar works of

art` Archeological possessions

` Computers, laptops and othergadgets

` Two wheelers, trucks, buses and lorries


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.


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` An assessee has an ancestral property

(residential house) which is located in a village

beyond 30kms from the Municipality limits.

` The value of the property as perSch III is Rs 40lacs.

` Is the property assessable to wealth tax


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` A firm of chartered accountants, operates out of

an apartment owned by one of its partners.

` The value of the property is Rs 60 lacs.

` The partner claims the property is being used forprofession hence it is not an asset for wealth tax

purposes.


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` An employer has an employee scheme whereby

the employee would pay 20% of the cost of a car

and pay the balance with an interest of 3% over

five years.` The car would be used by the employee however

it would be owned by the employer till the

repayment of loan is complete.

` In whose hands is the car assessable to tax?


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` An assessee has 2 acres of land at Chennai which

is classified as agricultural land by the local

authorities.

`

The assessee claims that the property is notassessable to wealth tax as it is agricultural land.

Discuss.


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` An assessee purchased a piece of land on 1st of

Jan 2009 and started construction on the property

on 10th ofFebruary 2009.

`

The property was complete on 15th

of July 2009.` Is this property a taxable asset for the previous

year 2008-09?


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` Kingfisher Airlines is into operating commercial

aircrafts within and outside India. During the year

the company acquired an aircraft for the exclusive

use of its Chairman Mr Vijay Mallya for Rs 150crores. Is this asset a taxable asset for wealth tax

purposes?


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` An assessee gifted 10000 shares of HLL to his

spouse.

` She sold these shares in the market for Rs 20 lacs

and invested in a house property.` The value of the house property on valuation date

is Rs 35 lacs. Discuss.


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` An assessee gifted a property to his fianc on 1st

of December 2008.

` They both got married on 28th February 2009. The

value of the property on 31st

of March was Rs 35lacs. Discuss.


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.


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Exemption u/s 5(v) is available provided:

` Assessee is an individual

` Assessee is a citizen ofIndia or a PIO

` Assessee was ordinarily residingin a foreigncountry

` Assessee has returned to India with an intention to

permanently reside inIndia


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` The term ordinarily residing has not been defined

` Madras High Courtin the case ofPeriannan vs

CWThas enunciated that:

Ordinarily residing refers to residence of long durationoutside India

A person for whom India is a permanent residence

cannot claim exemption under this section merely by

travelling abroad and residing abroad for a period of one

year and thereafter returning to his own country


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` Money

` Value of assets brought into India

` Value of assets acquired out of such money:

Within one year prior to the date of return Any time after the date of return

Period of Exemption:

- 7 years including the year of return.


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` An assessee being anIndian citizen returned from

Dubai after having served there for almost 25

years during the previous year.

`

He bought 10 kgs ofgold and a Rolls royce car(estimated at Rs 1 crore) along with him.

` Immediately on landing, he sold the gold in the

open market for a consideration of Rs 10 lacs per

kg and invested the consideration towardsacquiring a piece of land in Chennai.

` Fair market value of the land in Chennai on

valuation date is Rs 1.3 crores.


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` An assessee being anIndian citizen purchased an

urban land for Rs 3 crores out of remittance from

outside India on 01.01.2009.

`

He returned to India with an intention topermanently reside inIndia on 10.10.2009.

` Discuss the taxability of the Urban Land.

Issues for Consideration:

` Is the asset eligible for exemption u/s 5(v)` For the previous year 08-09 is the assessee

eligible for exemption


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.


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` No specific rules prescribed for valuation of land

` Guideline value may not be real indicator of the

market value of the property

` Valuation of Property with huge vacant land (rule20)

` Valuation of property under construction

(Karnataka jurisdiction)

` Cost of valuation


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` Cars shown in the balance sheet are generally

valued on the basis of book value

` Cars held by individuals not claiming depreciation:

Consider the estimated book value of the car assumingdepreciation was being claimed

Consider the insured value.


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` Fair market value and realisation value could be

atleast 20% different

` Where there is exchange of jewellery / significant

addition/deletion of jewellery it makes it imperativefor another valuation certificate

` Cost of valuation (also refernotificationno

15/2009 dated 30/01/2009)


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Note:

` Minimum fees payable per valuation shall be Rs 500

` Where two or more assets are required to be valued all

such assets shall be deemed to constitute, a singleasset for the purposes of calculating the fees payable.

Situation Maximum fees payable

On first Rs 5 lacs of value 0.50%

On the next Rs 10 lacs of value 0.20%

On the next Rs 40 lacs of value 0.10%

On the balance value 0.05%


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To be discussed on the floor


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.


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` Wealth tax returns to be filed inForm BA

` Due date for filing is similar to 139(1) due date

` Delay is furnishing returns shall attract penal

interest @ 1% p.m Sec 17B (similar to 234A)` Wealth tax is payable on before the due date of

filing

` Belated Return can be filed within one year from

the end of the relevant assessment year.


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Section Nature of Default Minimum

Penalty

Maximum

Penalty

INTEREST

17B Non filing of returns within due date Interest @ 1% for every month or

part thereof

31(2) Non payment of amount specified innotice

u/s 30 within 30 days

Interest @ 1% for every month or

part thereof

PENALTIES

15B(3) Non payment ofSelf Assessment Tax orinterest

Discretion of AO 100% ofTax inarrears

18(1)(ii) Non compliance ofnotice without

reasonable cause

Rs 1000 for

each failure

Rs 25000 for

each failure

18(1)(iii) Concealment ofWealth 100% of Tax

sought to be

avoided

500% of tax

sought to be

avoided

18A(1)

(a),(b),(c)

Failure to answer questions, sign

statements without reasonable cause

Rs 500 for each

failure

Rs 10000 for

each failure

18A(2) Non furnishing in due time information

required u/s 38 without reasonable cause

Rs 100 for each

day of default

Rs 200 for each

day of default

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