Chapter XVII
Tax on net wealth
17.1 Two major types of taxes are levied on wealth : one applied to a person’s wealth (net wealth-taxes) and the other applied on the transfer of wealth (transfer taxes). Net wealth taxes are typically assessed on the net value of the taxpayer's taxable assets (i.e., value of assets minus any related liability).
17.2 The case for levy of wealth-tax is based on several arguments. Firstly, the holders of substantial economic resources have the capacity to pay higher taxes than those with similar incomes but with less wealth. Secondly, it adds to the overall progressivity of an income-tax without having to increase marginal rates. Thirdly, a wealth-tax base separate from an income-tax base helps to partially capture the income-tax avoided or evaded. Finally, wealth carries with it a degree of security, independence, influence and social power that is not adequately measured by the flow of income and, hence, wealth constitutes an independent tax base which can be legitimately taxed through an annual tax on net wealth.
17.3 The Code proposes to tax net wealth in the following manner :—
(a) Wealth-tax will be payable by an individual, HUF and private discretionary trusts.
(b) Wealth-tax will be levied on net wealth on the valuation date i.e. the last day of the financial year.
(c) Net wealth will be defined as assets chargeable to wealth-tax as reduced by the debt owed in respect of such assets.
(d) Assets chargeable to wealth-tax will mean all assets, including financial assets and deemed assets, as reduced by exempted assets.
(e) The exempted assets will be restricted to the following :
(i) Assets used as stock-in-trade.
(ii) Any one house or part of a house or a plot of land belonging to an individual or a Hindu undivided family which is acquired or constructed before 1st day of April, 2000 ;
(iii) The interest of the person in the coparcenary property of any Hindu undivided family of which he is a member ;
(iv) The value of any one building used for the residence by a former ruler of a princely state.
(v) Jewellery in possession of a former ruler of a princely state, not being his personal property, which has been recognised as a heirloom by the Central Government before 1st April, 1957, or by the Board after that date.
(vi) Any property held by the person under trust, or other legal obligation, for carrying out any permitted welfare activity in India ;
(f) The valuation of financial assets will be at cost or market price, whichever is lower.
(g) The net wealth of an individual or HUF in excess of rupees fifty crore will be chargeable to wealth-tax at the rate of 0.25 per cent.
(h) The threshold limit of rupees fifty crore will not apply to a private discretionary trust.
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