Thanks to the restructuring of the Wealth Tax Act 1957 – w.e.f 1-4-1993, the occasions to file wealth tax returns in the day-to-day practice have substantially reduced. Nevertheless, it is essential to maintain an awareness about the provisions of the Wealth Tax Act, 1957. The major restructuring was in respect of the definition of ‘assets’ that are liable to wealth tax (WT). Now, the theme is – exempt assets put to economic or productive use. Thus, for a common man whose belongings mainly consist of a house, some jewellery, motor car and rest in financial investments – there is hardly any need to consider the WT liability. The value of the property and the car is usually covered in the basic exemption limit of Rs. 15 lakhs. One house is exempt while all financial investments are excluded from the definition of assets. Against this background we shall examine the provisions proper.

Wherever the concepts are same or similar as in Income Tax – e.g. clubbing, urban area, etc, the elaboration is avoided for the sake of brevity.

1. Who is liable?
   Only an individual, HUF and company are liable to WT (Sec. 3)
   Section 45 expressly excludes the following from the liability of WT –

   1. Section 25 company

   2. Co-operative society

   3. Social club

   4. Political party

   5. Mutual Fund specified u/s 10(23D) of the I.T. Act.
       

2. WT at what rate?
   It is 1% uniformly (plus education cess of 2% thereof) on the net wealth in excess of Rs. 15 lakhs.
    

3. When to pay?
   It is to be paid as self-assessment while filing the return and there is no advance tax.
    

4. When and how to file the return?

   1. The due date is the same as under Income-tax Act (31st July or 31st October as the case may be)

   2. As per Rule 3 of the Wealth Tax Rules, 1957 – where the assessee is carrying on a business, a copy of the balance sheet or trial balance as on the valuation date and a copy of the auditor’s report, if any, shall also be furnished along with the return of net wealth.

   3. Revised Return – Sec. 15 – Within 1 year from the end of the relevant Assessment Year or before the completion of the assessment, whichever is earlier.

   4. Return is in the prescribed Form BA.

   5. If there is a delay in furnishing the WT return – the assessee shall be liable to pay simple interest at the rate of 1% p.m on WT liability from the due date of furnishing return to the date of furnishing return or if return is not filed till the completion of assessment.

   6. Moreover, there are penal provisions under section 18 for failure to furnish returns.
       

5. Scope

   1. Citizen of India –

      1. Resident and ordinarily resident – All assets and debts located in and outside India

      2. Non-resident or not ordinarily resident – All assets and debts located in India.

   2. Not a Citizen of India (Section 6)

      1. Value of assets and debts located in India. – to be included

      2. Assets held in India represented by any loans or debts owing to the assessee in any case where the interest if any payable on such loans or debts is not included in the total income of the assessee under section 10 of the Income-tax Act – to be excluded.
          

6. Important definitions

   1. Asset [Sec. 2 (ea)] – Only six items are specified to be assets –

      1. House - Any building or land appurtenant thereto, whether used for residential or commercial purposes or for the purpose of maintaining a guest house or a farm house in an urban area.
         
         Exceptions – Following are excluded –

         1. House meant exclusively for residential purposes and which is allotted by a company to a whole time employee (including officer or director in whole time employment), having gross annual salary less than Rs. 5 lakhs.

         2. Stock-in-trade.

         3. Used for business or profession of the assessee.

         4. Residential property, which is let out for a minimum period of 300 days in the previous year.

         5. Commercial establishments or complexes.
             

      2. Motor cars – Except those used in the hiring business or as stock-in-trade.
          

      3. Jewellery, bullion, furniture, utensils – Except those used as stock-in-trade. Gold Deposit Bonds under the Gold Deposit Scheme, 1999 are excluded.
          

      4. Yachts, boats and aircrafts – Other than those used for commercial purposes.
          

      5. Urban land – Any land situated in urban area.
         Exceptions –

         1. Land on which construction of a building is not permissible under any law.

         2. Land occupied by any building, which has been constructed with the approval of the appropriate authority.

         3. Unused land held for industrial purposes up to 2 years.

         4. Land held as stock-in-trade up to 10 years.
             

      6. Cash in hand – For individuals and HUFs, in excess of Rs. 50,000/- and in the case of any other person, any amount not recorded in the books of account.
          

   2. Net Wealth [Sec. 2 (m)] – The difference between aggregate value of assets and the value of all the debts owed by the assessee on the valuation date which have been incurred in relation to the said assets.
       

   3. Valuation date [Sec. 2(q)] – Valuation date ordinarily means the last day of the previous year. For all practical purposes, it is 31st of March.
       

7. Inclusion of assets held by another person – Clubbing (Sec. 4)

   1. These provisions are parallel to sections 60 to 64 of the Income-tax Act, 1961 –

      1. Assets transferred by the assessee to the spouse directly or indirectly otherwise than for adequate consideration or in connection with an agreement to live apart.

      2. Assets held by minor child except –

         1. Assets held by a handicapped child suffering from a disability specified in section 80U of the I. T. Act.

         2. Assets acquired out of his income earned by minor from any manual work done by him or application of his skill, talent or specialized knowledge and experience.

      3. Assets transferred to a person or an AOP for the benefit of the transferor, his or her spouse for the immediate or deferred benefit of these persons for inadequate consideration.

      4. Assets transferred under revocable transfers.

      5. Assets transferred to son’s wife for inadequate consideration.
         As per section 4(4), the above provisions of clubbing will not apply in respect of transfer of assets made before 1-4-1956.
          

   2. Sec. 4 (1)(b) – Value of the assets determined in the manner as specified in Schedule III shall be added to the wealth of the partner in a firm or member of an association of persons.
      
      The proviso states that where a minor is admitted to the benefits of partnership in a firm, the value of the interest shall be clubbed as is mentioned above.
       

   3. Sec. 4 (1A) – Analogous to sec. 64 (2) of the I.T. Act – Where an individual converts or transfers his personal property to the common stock of the family directly or indirectly to the HUF for an inadequate consideration, the value of such transferred property shall be included in the net wealth of the individual.
      
      If the converted property is subsequently subject to total or partial partition and the spouse receives any part, then such part shall be deemed to be the wealth of the individual.
       

   4. Sec. 4 (5) – The value of any assets transferred under an irrevocable transfer shall be liable to be included in computing the net wealth of the transferor as and when the power to revoke arises to him.
       

   5. Sec. 4(6) – The holder of an impartible estate shall be deemed to be the owner of all the properties comprised in the estate.
       

   6. Sec. 4(7) – Analogous to sec. 27 (iii) of the I.T. Act – Deemed owner of a house – Member of a co-operative society, company and AOP.
       

   7. Sec. 4(8)(a) – Analogous to sec. 27 (iiia) of the I.T. Act – Property received under sec. 53A of Transfer of Property Act, 1882 under part performance – Person shall be deemed to be the owner.
       

   8. Sec. 4(8)(b) – Analogous to sec. 27 (iiib) of the I.T. Act – Lessee other than month-to-month lessee and as referred to in clause (f) of sec. 269UA of the I.T. Act.
       

8. Exemptions in respect of assets – Sec. 5

   1. Property held under trust for public purpose of a charitable or religious nature in India - Sec. 5(i)

   2. Interest in the Coparcenery property of an HUF of which he is a member – Sec. 5(ii)

   3. Any one building occupied by a Ruler - Sec. 5(iii)

   4. Jewellery in possession of a Ruler, recognised as his heirloom Sec. 5(iv)

   5. Assets of a non-resident, who has returned to India with an intention to permanently reside in India. The exemption is for 7 successive assessment years - Sec. 5(v)

   6. One house or part of a house or a plot of land comprising an area of 500 square metres or less, belonging to an individual or a Hindu undivided family – Sec. 5(vi)
       

9. Valuation of assets – Sec. 7
   Value of assets other than cash shall be as determined in the manner laid down in Schedule III. 

   1. Immovable property – Detailed provisions regarding the valuation of immovable property are prescribed in Rules 3 to 8 of Schedule III. The value is arrived at by multiplying the net maintainable rent with the given factor.
      
      The value of a house owned by the assessee and exclusively used by him for residential purposes throughout the period of 12 months immediately preceding the valuation date shall be value computed as per the manner laid down in Schedule III or the valuation date relevant to the assessment year 1971-72, whichever date is later.
       

   2. Jewellery – Prescribed in Rules 18 and 19 of Schedule III. The value of the jewellery shall be estimated to be the price which it would fetch if sold in the open market on the valuation date.
      
      If the AO is of the opinion that the value as provided by the assessee is less than the market value, he may refer to the Valuation Officer and the value estimated by the VO shall be the value as chargeable to wealth tax.
      
      If the value of the jewellery does not exceed Rs. 5 lakhs the return of wealth shall be accompanied by Form No. O – 8A and where it exceeds Rs. 5 lakhs a report of the registered valuer in Form O-8 shall be attached.
       

   3. Interest in the firm or association of persons – The net wealth of the firm or AOP shall be determined as if it were an assessee. Then the portion of the net wealth as is equal to the capital shall be allocated amongst the partners or members in the proportion of capital contribution.
      
      The balance shall be allocated as per the profit sharing ratio.
       

10. Conclusion
    Needless to state that apart from the provisions of WT proper, one has also to ensure consistency with the declarations made in IT Return.