Wealth tax was a charge levied on the total or market value of personal assets. Also known as capital tax or equity tax, wealth tax was imposed on the richer sections.
Wealth tax included certain prescribed assets, such as building or land (with certain exceptions), vehicles, jewellery, bullion, yachts, boats and aircraft (other than those ones used for commercial purposes), urban land, and cash in hand exceeding a certain amount. A net wealth tax deducted liabilities from an individual's wealth, primarily mortgages and other loans.
According to the Wealth Tax Act, 1957, an individual, Hindu Undivided Family (HUF) and companies are required to pay wealth tax at the rate of 1 per cent on net wealth exceeding Rs 30 lakh as on the last day of the financial year. The Act was applicable across India.
The application of the Wealth Tax Act was, however, discontinued on April 1, 2016, due to a low level of awareness and yield, besides an increased cost of collection and administrative burden.
The wealth tax was abolished in the Union Budget (2016-2017) on February 28, 2016, and replaced with an additional surcharge of 2 per cent on the super-rich (those with annual taxable income exceeding Rs 1 crore). Wealth tax mainly targetted super-rich people with hefty assets either received through legacy or earned on their own.
The wealth tax was not part of the Income Tax Return (ITR) and was a form of direct tax required to be paid separately at the end of each financial year.
The following were not covered under Wealth tax:
* Co-operative Societies
* Companies registered under Section 25 of the Companies Act, 1956
* Social clubs
* Political parties
* The Reserve Bank of India
* Mutual Funds registered under Section 10(23D) of the Income Tax Act
* Artificial Judicial Persons
* Partnership firms
* Association of persons (AOPs)
The following assets were exempted from wealth tax:
* Property held under trust for the purpose of charity/religious purposes
* Interest in joint heirship property of a Hindu Undivided family
* Possession of jewellery by an affluent person (ruler) not as a personal property
* A self-occupied residential house or a plot of land that does not exceed 500 square metres
Besides, a residential house or commercial building which formed part of stock-in-trade or any house that the taxpayer might be occupying for the purpose of business or profession carried out by them or a property in the nature of commercial establishment or complexes were also excluded from the purview of wealth tax.
For taxpayers with more than one house property (in addition to one residential property), the additional house properties were excluded from wealth tax if they were let out for a minimum of 300 days during the previous year.
Wealth tax was typically levied on non-productive assets. So, productive assets like mutual funds, fixed deposits, exchange-traded gold funds and savings bank accounts, too, were not included in wealth tax.