You pay tax when you earn, you pay tax when you spend, you pay tax when you save and you pay tax when you create wealth. While the tax on earning, spending and saving is one time, wealth tax is payable every year on the asset that you hold.
The provisions dealing with wealth tax are enshrined in the Wealth Tax Act, which was passed in 1957. The current law, which is more than half a century old, is scheduled to be replaced by the proposed Direct Taxes Code. The government recently unveiled the revised version of the DTC (DTC 2013) for public discussion/comments. DTC 2013 has proposed certain significant changes to the existing provisions vis-à-vis levy of wealth tax.
Under the current provisions of the Wealth Tax Act, this tax is payable in respect of the net wealth on the corresponding valuation date (March 31) by every individual, Hindu Undivided Family (HUF) and company. As compared to this, DTC 2013 proposes to cover every individual, HUF and private discretionary trust within the ambit of the wealth tax. Thus, the corporate taxpayers are proposed to be kept out of the wealth tax net. Further, this is also a significant shift as compared to the earlier proposal under DTC 2010 wherein everyone (other than non-profit organisations) was proposed to be covered within the ambit of wealth tax. Thus, the relaxation under DTC 2013 should bring a sigh of relief to all other taxpayers.
Wealth tax under the current law is chargeable on the net wealth comprising of certain specified assets like house, motor cars, jewellery, yachts, aircraft, urban land, etc, with a few exceptions thereto. It also provides a list of assets that are not subject to wealth tax. In spirit, the levy of wealth tax currently is on certain unproductive assets. The levy of wealth tax under DTC 2010 was also proposed on certain specified assets, albeit with certain additions to the list.
However, DTC 2013 significantly widens the base for levy of wealth tax. It captures all assets for wealth tax (barring few exceptions) as against only unproductive assets captured in the current law. It also proposes to include all financial assets under the ambit of wealth tax as compared to only physical assets at present. Thus, the new law proposes to bring virtually all assets under wealth tax net including shares, mutual funds, debt instruments, etc. The stated rationale for such fundamental