ALL individuals and Hindu Undivided Families whose net wealth as on March 31 exceeds Rs 30 lakh is required to pay wealth tax at one per cent of the amount that exceeds Rs 30 lakh.
The good news is that wealth tax is payable only on what are termed 'unproductive assets'. Consequently assets such as shares, securities, mutual funds and fixed deposits, the 'productive assets', are exempted. Though there is a long list of items such as yachts, boats, aircraft, etc, that are subject to wealth tax, for our purposes we shall only consider assets that are commonly owned such as real estate, jewellery and cars.
Just like in income tax law, one house is exempt from wealth tax. In other words, ownership of more than one house will attract wealth tax liability on the second house onwards. There are three exceptions. If a property is used for conduct of business or a profession or if it forms a part of stock-in-trade or has been rented out for at least 300 days in the year, wealth tax is not applicable on such property.
Also note that wealth tax is applicable on net wealth, after deducting any liabilities or debt owed to acquire the assets. Therefore, if any house subject to wealth tax has been purchased using housing finance, the value of the loan due is deductible while arriving at the figure of net wealth.
If you find yourself liable for wealth tax, merely transferring the asset to your spouse will not help. Clubbing provisions similar to those applicable in income tax law are also applicable in the case of wealth tax. Therefore, any assets gifted to spouse, minor child or son's wife will be, notwithstanding the gift, deemed to belong to the taxpayer.