Wealth Tax in India was introduced in India in the year 1957 and is levied on Individuals, HUF’s and Companies if the Net Wealth of such person exceeds Rs. 30 Lakhs on the Valuation Date i.e. last date of the previous year. For the purpose of computation of taxable net wealth, only a few specified assets are taken into account.
Arun Jaitley while announcing Budget 2015 announced that the levy of Wealth Tax has now been completely removed from Financial Year 2015-16 onwards. The loss of revenue due to the abolishment of Wealth Tax would be compensated by the levy of additional surcharge on high income earning assessees.
The levy of surcharge is easy to collect & monitor and also does not result into any compliance burden on the taxpayer as well as the administration department.
The information pertaining to assets which is currently required to be furnished in the Wealth Tax Return would now be required to be mentioned in the Income Tax Return. The new Income tax return forms would accordingly be amended so as to capture the details of assets.
Reason for Abolishment of Wealth Tax
The Wealth Tax Act which was introduced in 1957 was thoroughly revised in 1993 on recommendations of the Chelliah Committee. The Chelliah Committee had recommended abolition of Wealth Tax in respect of all items of wealth other than those which can be regarded as unproductive forms of wealth or other items whose possession could legitimately be discouraged in Social Interest.
The actual collection from the levy of wealth tax during the Financial Year 2011-12 was 788.67 Crores and during the Financial Year 2012-13 was Rs. 844.12 Crore only. The no. of Wealth Tax assesses was around 1.15 Lakhs in 2011-12.
Although only a nominal amount of revenue is collected from the levy of wealth tax, this levy creates a significant amount of compliance burden on the taxpayers as well as administrative burden on the department. This is because the taxpayers are required to value the assets as per the provisions of the Wealth Tax Rules for computation of net wealth and for Certain Assets like Jewellery, they are required to obtain valuation report from the Registered Valuer.
Moreover, the assets which are specified for the levy of Wealth Tax, being unproductive like Jewellery, Luxury Cars etc are difficult to be tracked and this gives an opportunity to the assesses to under report/ under value the assets which are liable to wealth tax.
Due to this, the collection of wealth tax over the years has not shown any significant improvement and has only resulted in disproportionate compliance burden on the taxpayers and administrative burden on the department.
Due to the above mentioned reasons, the levy of Wealth Tax in India has been abolished and removed. The loss of revenue to the govt. due to removal of the levy of Wealth Tax would be compensated by the additional surcharge levied on high income earning assessees.