WEALTH TAX

Basically Wealth tax is chargeable to

Net wealth
 Net wealth for this purpose is
computed as follows
Assets [u/s. 2 (ea)]
-
+ Deemed assets (u/s-4)
-
Total
(-) Exempted assets (u/s-5)
-
 Net wealth is chargeable to wealth tax
in the immediately following
assessment year
 Only an individual, HUF & a company
is chargeable to wealth tax.
 U/S-45, no wealth tax is chargeable in
respect of Net wealth of ------
Any co. registered u/s-25 of the
companies act 1956
Any co-operative society
Any social club
Any political party
A mutual fund specified u/s-10(23D)
of the Income tax act
 Net wealth in excess of Rs.15 lacs is
charge- able to wealth tax @ 1%.
 Companies registered u/s-25 of
companies act, 1956 are known as
Widely Held Companies
These are companies which are formed
for the object of promoting
 Commerce, art, science, religion, charity
or
Any useful object, which apply such profits
for promoting their objects & prohibit the
payment of dividend to their members
 Allother companies are known as
closely held co.
 Assets [2(ea)]
 Guest
house, residential house or
commercial building u/s 2 (ea) (i)

Any building or land whether used

for commercial or residential
purposes or for the purpose of
guest house
A farm house situated within 25
k.m. from the local limits of any
municipality or a cantonment board
 Exceptions
 Iffollowing conditions are satisfied
 A house is not treated as “Assets”—

It is meant exclusively for residential

purposes
It is allotted by a company to an
employee or an officer or a director
who is in full time employment
A house held as stock in trade
A house used for own business or
 Motor Car-[u/s 2 (ea) ii]
 Forthis purpose, “motor car” covers
all motor vehicles other than heavy
vehicles.
Exceptions
Motor car used by the assessee in
the business of running them on hire
Motor cars treated as stock in trade
 In case of leasing company motor car is an
asset
Where an assessee had admittedly
pur5chased a car, merely because in
view of some dispute with seller it has
JEWELLERY, UTENSILS
OF GOLD, SILVER etc.
[u/s-2 (ea) (iii)]
Any of such article made fully or
partially of gold, silver, platinum or
any other precious metal
or
Any alloy containing one or more of
such precious metals
are treated as
“assets”
 EXCEPTIONS
1. Stock in trade not an asset

4. Gold deposit bonds are not

asset
 BOATS and AIRCRAFTS
[u/s-2 (ea) (iv)]

Boats & Aircrafts are treated as

Assets

Other than those used by the

assessee for commercial purpose
 URBAN LAND
[u/s-2 (ea) (v)]
 An urban land is an asset whether it is
agricultural land or non agricultural land.

 It refers to a land situated in following

areas:

5. Land situated within municipality area

6. Land situated outside municipality
area
(Not more than 8 k.m.)
 EXCEPTIONS
 On which construction of building is not
permissible
 On which construction is done with the
approval of authority
 Any unused land held by the assessee for
industrial purposes for a period of 2 years
from the date of its acquisition.
 Any land held by the assessee as stock in
trade for a period of 10 years from the date
of its acquisition.
 DEEMED ASSETS [u/s-4]

2. Assets transferred by one spouse to

another [u/s-4(1)-(a)(i)]
3. Assets held by minor child
4. Assets transferred to a person or an
association of persons.
5. Assets transferred under revocable
transfers
6. Assets transferred to son’s wife
 Continued…..
• Assets transferred for the benefit of
son’s wife
• Interest of partner [u/s-4 (1) (b)]
• Conversion by an individual of his
self acquired property into joint
property
• Gifts by book entries
• Property held by a member of
housing society
 ASSETS EXEMPT FROM TAX
(u/s-5)
 Property held under a trust
 Interest in the property of HUF for a
family member
 Residential building of a former ruler
 Former ruler’s jewellery
 Assets belonging to the Indian
repatriates
Repatriate (send back to domestic
country)
 DEBT OWED (Due)
[u/s/-2 (m)]
 The following two conditions should
be satisfied to get deduction of debt
owed.

3. Only debt owed by the assessee

on the valuation date is
deductible.
4. Debts should have been
incurred in relation to these
assets which are included in net
 VALUATION OF ASSETS
[U/S-7]
1. Building (Part-B of schedule III)- Para
549.1
Step 1: Find out Gross maintainable rent i.e.
c) If property is let out
 Annual rent received or receivable by the
owner
Or
 Annual value of the property as assessed by
local authority
Whichever is higher
 a) If property is not let out
 Annual rent assessed by the local
authority
Or
 (In case property is situated outside
the jurisdiction of local authority)
The amount which the owner can
reasonably be expected to receive as
annual rent had such property been
let.
Step 2: Find out net maintainable
rent
 It is calculated by deducting
following from step 1
b) The amount of taxes charged by
any local authority in respect of
property
And
d) A sum equal to 15% of gross
maintainable rent
 Step 3: CAPITALIZATION
 Capitalization
can be done by multiplying the
net maintainable rent by a decided factor as
per follows:

 In case of construction on lease hold land

factor should be 12.5
 In case of the lease period of such land is 50
years or more factor should be 10
 In case lease period is less than 50 years
factor should be 8
 Step 4: ADD PREMIUM
 This step is to add premium to the
step 3

 Ifthe unbuilt area of the plot of land

on which the property is built
exceeds the specified area
 For calculating premium
following terms should be clear

• Aggregate area: It refers to floor

area (built/ unbuilt)

• Unbuilt area: It refers to that part of

aggregate on which no building has
been constructed
 Specified area:
 Where the property situated at
Mumbai, Kolkata, Delhi or Chennai
60% of the aggregate area

 Where the property situated at Ahemdabad,

Agra, Allahabad, Amritsar, Bangalore, Bhopal,
Cochin, Hyderabad, Indore, Jabalpur,
Jamshedpur, Kanpur, Lucknow, Ludhiana,
Madurai, Nagpur, Patna, Pune, Salem, Sholapur,
Surat, Tiruchirapalli, Trivandrum, Vadadora or
varanasi 65% of the aggregate

 For any other place 70% if the aggregate

area
 Calculation of Premium
Excess of unbuilt area over specified area
Premium

Not more than 5% of aggregate area Nil

5% to 10% of aggregate area

20%

10% to 15% of aggregate area

30%

15% to 20% of aggregate area

40%

More than 20% of aggregate area

Rules of part-B
Schedule III
Not
 Step 5: DEDUCT UNEARNED
INCREMENT
 It is to deduct the amount of
unearned increment payable
 If property is built on leasehold land
& any part of 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 will be reduced by the
amount liable to be so paid.
2. Valuation of self occupied
property - u/s-7 (2)
 It is applicable if following conditions are
satisfied.
b) The assessee owns a house, being an
independent residential unit
c) It is used by the assessee exclusively for
his residential purposes throughout 12
months

If these conditions are satisfied, the

assessee can adopt anyone of the
following
 Option 1
 He can take the value of a house as
determined under part B of schedule III on
the valuation date relevant for the current
assessment year.

Option 2
 Alternatively
he take value of the house,
as determined under part B of schedule III
on the first valuation date on which he
became the owner or the valuation
relevant for the assessment year 1971-
1972.
 3. Valuation of Assets of
Business
[Part D schedule III]
a) Value of assets disclosed in Balance
Sheet
Step 1: Find out following

Assets Value
Depreciable assets
W.D.V.
Non depreciable assets
Book value
(other than stock in trade)
Closing stock Value
adopted for the
 Step 2
 Add 20% the values given in above
table
Step 3
Find out the value of individual asset
as per the provisions of schedule III
Step 4
e) If the value of step 3 > step 2 then
the amount of step 3 will be taken
as value
f) Else the value of step 1 will be
a) Value of assets not disclosed in
Balance Sheet

 The value of an asset not disclosed in

the balance sheet shall be taken to
be the value determined in
accordance with the provisions of
schedule III as applicable to that
asset.
 4. VALUATION OF INTEREST IN
FIRM OR ASSOCIATION OF
PERSON
 First of all determine the net wealth of the
firm. (ignore the section-5)
 This portion of net wealth, up-to the
capital of the firm is allocated among the
partners in the proportion of their
contribution.
 The rest is allocated among partners
according to the agreement of the
partnership for distribution of assets in
dissolution or as per sharing ratio.
 5. VALUE OF LIFE INTEREST
(Part F, schedule III)
Step 1:
Find out “average net annual
income” of the assessee desired for
the life interest during 3 years
ending on the valuation date.
Step 2:
Allow maximum 5% as collection
charges.
Step 3: Average net annual income shall be
multiplied by multiplier i.e.
1/(p+d)-1
Where,
p = Annual premium for a whole life insurance
without profit on the life of the life of tenant for
unit sum assured.
d = (i/1+i) as i being rate of interest which is 6.5%
Thus the multiplier depends upon the premium
for unit sum assured and age of the person
having life interest. The multiplier i.e.
[1/(p+d)-1],
for different age may be checked through a pre
calculated table
 Numerical Problem
 Mr. A aged 40 years. His father settled a
house property in trust giving whole life
interest to A.
 The income form the property for the years
2005-06 to 2008-09 was 80000, 94000,
90000 and 96000 respectively
 The expenses incurred each year were Rs.
4000, 6000, 7500, and 18000 respectively.
 Calculate the value of life interest of A in the
property so settled on the valuation date
March 2009, on the assumption that the
value of house as per schedule III is (a) 25
lakhs, (b) 8 lakhs
 The multiplier at the age of 40 is 10.093
 Solution
 The average annual income for the period
2006-07 to 2008-09
Years 2006-07 2007-08
2008-09
Income 94000 90000
96000
(-) Exp (5%) 4700 4500
4800
Net Income 89300 85500
91200
Average annual income is
89300+85500+91200 = 266000
 DECISION
 Part (a)
 The value of life interest of A in
house will be taken as
Rs. 894912.70 (as it is less than
16 lakh)
 Part (b)
 The value of life interest is Rs.
894912.70.
 However the value of the house
in respect of which A has
interest is Rs 8 lakh.
 Therefore value of life interest
6. VALUATION OF JEWELLERY
 The value of jewellery shall be estimated
to be the price which it would fetch if
sold in the open market on the valuation
date. The following points should be kept
in view.
b) If value of jewellery less than Rs. 5
lakh
 A statement in Form No. O-8A is required
for return
d) If value of jewellery more than Rs. 5
lakh
 A report of a registered valuer in Form
No.
 7. VALUATION OF OTHER
ASSETS
 Thevaluation of an asset other than
cash shall be estimated either by the
assessing officer himself
or
by the valuation officer
In both of these cases, the value
shall be estimated to be the price
which it would fetch if sold in open
market, on the valuation date.
 If the asset is not saleable in
open market
 The value shall be determined in
accordance with guidelines or
principles specified by the board
from time to time by general or
special order
 Return of wealth and
assessment
 Everyperson is required to file with
the wealth tax officer.

A return of net wealth in Form BA

If his net wealth or net wealth of

any other person in respect of
which he is assessable under act
on the valuation date is of such
amount as to render him liable
to wealth tax.
 Return in response to a notice
u/s-17
 If any person, in the opinion of
wealth tax officer, is assessable to
tax, the wealth tax officer may,
before the end of the relevant
assessment year, issue a notice
requiring him to furnish, a return of
net wealth in prescribed form, within
30 days from the date of service of
such notice.
 Return showing wealth tax
below taxable limit u/s-14 (2)
A return other than the return
furnished in response to a notice
u/s-17.

 Which shows the net wealth

below the taxable limit,
therefore not chargeable to tax

 It
will be deemed never to have
been furnished
 Return after due date or
amendment of return u/s-15
 Ifany person has not furnished a return
within time allowed under section 14 (1)
or 16 (4) (i)
OR
 Having furnished a return discovers any
omission or any wrong statement.
 He may furnished a return or revised
return, as the case may-be.
 Late return or revised return can be
submitted within one year from the end
of the assessment year or before
 ASSESSMENT
 Where wealth tax is payable on the
basis of return to be furnished.

 The assessee is required to pay the

tax before filling of the return.

 And such return is to be

accompanied by the proof of such
payment.
 REGULAR ASSESSMENT

 The Direct Tax Laws

(amendment) Act, 1987 has
amended the provisions
regarding procedure for
assessment. The new provisions
have been brought on the lines
of the income tax act.
 RECTIFICATION
 In case wealth tax authority commits any
mistake while passing any kind of order, to
rectify that mistake the wealth tax
authorities have following powers:
 Amendment of any order.
 Any order to refund.
 The valuation officer may amend its
orders.
 The joint Director, Commissioner,
Commissioner (appeals), or Director
may amend any of its order.
 The appellate tribunal may amend any
 APPEALS & REVISIONS
 The appeal against the order of an
assessing officer or revision of that
order by commissioner of wealth tax is
possible.
b) Filling of appeal to commissioner u/s-
23A (1) / 2
Within 30 days from date of receipt of
notice of demand or extended date.
d) Hearing & decision of the appeal by
commissioner (appeals) u/s-23A (8A)
Within a period of 1 year from the end
of the financial year in which such
a) Filling of appeal to tribunal u/s- 24
(1) / (2)
Within 60 days from date of
communication of order of deputy
commissioner (appeals)/
commissioner (appeals) or within
extended time.
c) Filling of cross objections with
tribunal u/s- 24 (2A)
Within 30 days from date of receipt
of notice or within extended time.
e) Hearing & decision of the appeal by
tribunal u/s- 24 (5A)
Within a period of 4 years from the
end of the financial year in which
such appeal is filed, where it is
possible
a) Filling application to commissioner
for revision u/s- 25 (1) (c)
Within 1 year from date of order
sought to be revised.
c) Revision of order by commissioner
u/s- 25 (1) (d)
Within 1 year from date of order
sought to be revised.
e) Revision by commissioner if
considered pre-judicial to revenue
u/s -25 (2) / (3)
Within 2 years from the end of
financial year in which order sought
to be revised is passed.
a) Passing order by commissioner on
application made by assessee for
revision-u/s-25 (3A)
Within 1 year from the end of the
financial year in which application is
made.

d) Application to tribunal from orders

of enhancement by chief
commissioner or director general u/s
– 26 (1)
Within 60 days from date of
communication of order of Chief
Commissioner or Director General.
a) Filling application to Tribunal for
reference to High court u/s- 27 (1) /
(2)
Within 60 days from date of
service of Tribunal’s order or
within such further time no
exceeding 30 days as allowed
by Tribunal on sufficient cause
c) Filling appeal to High court by the
assessee or Chief commissioner or
commissioner u/s- 27 A
Within 120 days of the day
upon which he is served with
a) Filling appeal to Supreme Court u/s-
29
If the assessee is not satisfied
with the orders passed by High
Court, they may file an appeal
against the order of High court
to the Supreme court, but with
the consent of High Court.
 UNIT-4
COMPLETE