The season to file income tax returns is on and most taxpayers will try to quickly wrap up the process. But most people ignore the importance of filing annual wealth tax returns.
Govind Pathak, a certified financial planner, explains, “If you start paying wealth tax all of a sudden, officials can seek records of how you acquired this wealth. Filing wealth tax returns regularly helps you create evidence of ownership of assets and also how they have increased year-on-year.”
However, only a few are prepared for this. Reason: Valuation of wealth is often a tedious process. Take, for instance, valuation of land, where one has to get an approved valuer, either a civil engineer or an architect, to start the process. The problem arises when the land on the outskirts of a city or in some remote village. One has to travel there, find the market value, and so on...
Technically, wealth comprises six types of assets: Land and building; cars; yachts, boats and aircraft; jewellery and bullion; articles made of gold, silver or platinum; cash-in-hand in excess of Rs 50,000.
Transferring any of these assets or gifting to your spouse, minor children or even your daughter-in-law will still lead to taxation because they are considered “deemed assets”.
However, there are some exceptions. As far as land and building go, there may be some exemptions if these are being used for residential purposes. A commercial property being used for business purposes could also be excluded. Residential and commercial properties owned and rented out for more than 300 days in the assessment year can also be excluded.
Also, if you have availed of a loan to buy these assets, the amount will be reduced from your wealth while calculating the tax.
Taxation: Unlike income tax, there are no separate tax slabs for payment of wealth tax. The threshold of Rs 30 lakh is common for all. Anything in excess is taxable at one per cent. There is no surcharge or education cess.
For example, if your total wealth amounts to Rs 50 lakh, only Rs 20 lakh is taxable at one per cent — that is, wealth tax liability will be Rs 20,000.
Valuation: An income tax department-approved valuer can provide you a valuation report, termed as fair market value, of your jewellery, land and building. For motor cars, yachts, boats and aircraft, the insured declared value is considered.
There are a few benefits while valuing certain assets. Assets like cars, yachts and aircraft depreciate each year. “People can do a rough valuation of assets as long as they are not close to crossing the threshold of Rs 30 lakh. As and when they feel they are approaching the threshold, they must start getting their wealth formally valued,” says N C Hegde, tax partner, Deloitte.
Assets like land, building and jewellery are important and need to be valued regularly. The value of these assets is rising continuously, sometimes exponentially. Remember, even if you are out of the ambit of wealth tax, it is advisable to file wealth tax returns.
Exceptions: While filing wealth tax return is important, here are some interesting things one must know: While income tax is on income earned in a particular year, wealth tax is based on holdings on a particular date (March 31).
For example, if you owned a property or a car but sold it before March 31, the wealth goes down by that extent. The sale proceeds will become a part of your other income and taxed.
