Wealth tax and why it was abolished

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Wealth tax and why it was abolished

A Wealth Tax also known as ‘Taxing one’s riches’ was a popular direct tax which was levied on individuals, HUFs and companies whose net wealth exceeded Rs 30 lakhs on the valuation day. For the purpose of its calculation, only specified assets were taken into account. Such as:

  • Jewellery, ornaments made of precious metals, precious or semi-precious stones;
  • Second owned property which is not rented for more than 300 days in a year;
  • Farm house within the ambit of 25 kms from local municipality limits
  • Urban land having area exceeding 500 Sq. Mts.
  • Commercial establishment.
  • Owned car, boat, yacht or any aircraft
  • Cash exceeding Rs.50, 000/-

Abolishment of Wealth Tax

Finance Minister Arun Jaitley while announcing Budget 2015, abolished the tax now has been completely removed from financial year 2015-16 onwards. The loss of revenue will be now compensated by the levy of additional surcharge on the higher income earning assesses.

Reasons for it’s abolishment

  • The assets owned by assesses had to be valued by a registered valuer in order which    was an arduous job imposing unnecessary burden of expenses on assesses.
  • Assets like, jewellery, cash, cars were not easy to be tracked
  • Lack of awareness about the wealth tax among assesses
  • Did not form a significant part of the total collection of Direct taxes in India.

Current Scenario

The Wealth tax has been swapped with a higher tax on the super rich in India. An additional surcharge of 2% is now levied on the income exceeding ?1 crore of:

  • -Individual, HUF, AOP, BOI, whether incorporated or not;
  • -Cooperative societies
  • -Firms or local authorities 

The strategy will help the government to achieve its objective of bringing more persons under tax net as people who file returns under normal income tax act are much higher  than those who file under the wealth tax and to remove any scope of taking undue advantage of the loopholes of wealth tax.

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