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What are non-productive assets liable for wealth tax?

Though the professed objective of wealth tax from assessment year 1993-94 is to limit liability to non-productive assets, one has to go by the list of assets specified as an asset under Sec. 2(ea) of the Wealth Tax Act, 1957. Exemption limit is Rs. 15 lakh, tax being at one per cent on excess over such limit.

All buildings, whether residential or commercial or used as a guest house, are liable. So is a farm house within 25 km of municipal limits, subject to the following exceptions: (i) one house exclusively used for residential purposes, (ii) any residence or commercial building acquired for resale as stock-in-trade, (iii) any building used for assessee’s business, (iv) any building let out for a minimum 300 days in the accounting year and (v) any building in the nature of commercial establishment or complexes.

The other main asset is urban land. Urban land is widely defined to include lands within the municipal limits or limits of towns not exceeding 10,000 in population or within the periphery not exceeding 8 km of towns or cities, notified for the purpose. Such lands cannot avoid liability even if they are agricultural lands. But there is an exception where construction is prohibited over such a land or the land is used for industrial purposes for the first two years of acquisition or if held as stock-in-trade for the first ten years. If a person who does not have a residential house, but has a plot of land not exceeding 500 sq. m. in size, such land will be exempt. The other assets, which are liable, are: motor cars, yachts, boats and aircraft other than those used for business or stock-in-trade. Jewellery, other than those held in stock-in-trade in jewellery business, including bullion in the shape of coins and bars will be taxable. Cash not exceeding Rs. 50,000 not recorded in the assessee’s books is also made liable. Any liability like loans incurred in relation to these taxable assets will be deductible.

There is no valuation rule for urban land. Taxpayers are best advised to support valuation adopted by them either for not filing the wealth tax return as falling within the exemption zone of Rs. 15 lakh or for the value adopted in their wealth tax return to avoid the inference of under-statement, which implies a possible penalty.

There is a rule for valuation for life interest in taxable properties based on actuarial principle as well as rule for valuation of jewellery. Where there is a rule for valuation in the schedule to the Act, the value ascertained under the rule as scheduled value is binding. Where there are no rules for valuation, fair market value has to be adopted.

There is a concessional value for self-occupied house property, where it becomes chargeable to wealth tax not being covered by the exception for one residential property. Sec. 7 provides for a statutory pegging of value for self-occupied property. It is pegged at scheduled value as on March 31, 1971, if acquired before April 1, 1974. It is pegged at value as on the first valuation date if acquired on or after April 1, 1974, However, if the cost of the property exceeds Rs. 50 lakh in metropolitan cities and Rs. 25 lakh in other places in which case the valuation rule as for properties other than self-occupied as on the valuation date will be adopted. For other immovable properties, scheduled valuation is capitalised value at 12.5 per cent of the net maintainable rent, which is the gross annual value as reduced by local taxes and 15 per cent of such gross annual value. Where the property is let out, the actual rent receivable will be the gross annual value. Where it is not let out, it will be the annual value as assessed by the local government. Where the property has got excessive appurtenant land, there is a further adjustment to the scheduled valuation, if the unbuilt area exceeds specified limits.

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