Significance of Wealth Tax

Besides being a source of revenue for the government, a wealth tax is of immense significance:

1. Promotes Wealth Equality: The main purpose of a wealth tax is to reduce the gap between the poor and the rich and promote equality in wealth distribution by imposing more taxes on the assessee who significantly owns assets of higher value. It further leads to the re-distribution of wealth that ensures social well-being and promotes economic welfare.

2. Source of Revenue: A wealth tax is a source of revenue for the government that is used to finance public expenditure and fund the major projects of the government like infrastructural development, building schools, hospitals, dams, roads, etc. Further, wealth tax reduces the dependence of the government on income tax for revenue generation.

3. Progressive Taxation: A wealth tax is based on the concept of progressive taxation which ensures fairness in tax structure. Under progressive taxation, more taxes are imposed on those who own more wealth. This promotes fairness and trust among the public in taxation policy.

4. Economic Development: A wealth tax promotes economic growth by re-distributing the wealth equally and allocating the resources efficiently. The social gap between the rich and the poor is reduced eliminating poverty and promoting progress.

5. Controlling Externalities: A wealth tax helps the government in controlling negative externalities like wealth concentration, political influences, social instability, unequal opportunities, and so on.

Wealth Tax : Examples, Provisions, Exemptions, Calculation & Rates

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What is Wealth Tax?

A wealth tax is a tax charged on the net worth of an assessee. A wealth tax also known as net worth tax, capital tax, or equity tax falls under the category of direct tax as it is charged on the total value of assets held by an entity. A wealth tax is imposed on a wide range of assets including cash, bank balance, real estate, stocks, bonds, jewelry, pension plans, money funds, and other valuable properties. A wealth tax was charged at a rate of 1% on earnings of over ₹30 lakh p.a. earlier, but after the 2015-16 Union Budget, a surcharge from 2% to 12% is levied according to the worth of an assessee. However, it should be noted that assessees who are liable to pay wealth tax include Individuals, Companies, and Hindu Undivided Families (HUF). A partnership is not liable to pay this tax because the assets of the firm are taxable in the hands of partners individually. Moreover, cooperative societies, social groups, political parties, the Reserve Bank of India (RBI), and companies under section 25 of the Companies Act shall not be liable to pay a wealth tax....

Example of Wealth Tax

Let’s assume that Ravi who is an individual owns assets worth ₹10,00,000 and is liable to pay wealth tax at a rate of 20%. The total liability of Ravi is ₹2,00,000. Then,...

Significance of Wealth Tax

Besides being a source of revenue for the government, a wealth tax is of immense significance:...

Provisions of Wealth Tax in India

A provision of a wealth tax in India is levied by the Income Tax Department of India and a wealth tax is governed under the Wealth Tax Act, 1957. However, it is important to note that a wealth tax was abolished after the declaration of the 2015-16 Union Budget. Now, a surcharge is levied instead of a wealth tax in India....

Basic Provisions in Wealth Tax

The basic provisions mentioned under the Wealth Tax Act are:...

Wealth Tax Exemptions

1. Productive assets like investment in shares, securities, and mutual funds....

Calculation of Wealth Tax

To calculate wealth tax follow the steps mentioned below:...

Wealth Tax Rates

A wealth tax of 1% is levied on the total net income of an Individual, HUF, or Company if it exceeds the amount of ₹30 lakhs p.a. However, after the abolishment of the Wealth Act, Union Budget 15-16 has imposed a surcharge of 2% to 12% on individuals who have an income above ₹1 crore and companies having an income of ₹10 crore or above....

Why Wealth Tax has been Abolished?

1. High Administrative Cost: The cost related to administration, implementation, and enforcement was more than the revenue generated through a wealth tax. This was the primary reason to abolish the wealth tax....

Pros of Wealth Tax

1. Promotes Equality: A wealth tax aims to promote wealth equality in society by imposing taxes on those who own higher wealth. This helps in reducing the financial gap between the rich and the poor, re-distribution of wealth, and efficient allocation of resources....

Cons of Wealth Tax

1. High Administrative Cost: The main disadvantage of wealth tax was that the cost of administration and enforcement was much higher than the revenue generated through wealth tax. This further increases the financial burden of the government....

Difference between Income Tax and Wealth Tax

Basis Income Tax Wealth Tax Focus Levying taxes on income earned during a specific period Levying taxes on accumulated wealth or assets owned on a specific date Base of calculation Taxable annual income of an assessee Net wealth or assets owned by an assessee Applicable Assessee All such persons who is liable to pay tax under provisions of the Income Tax Act, 1961 Individuals, Companies, and HUFs Tax Rates Structure Progressive tax rate based on income earned Progressive tax rate based on wealth owned Frequency Levied annually on income earned during the previous year Levied annually based on the value of assets on a specific valuation date (generally 31st March) Charged on Salaries, wages, business profits, capital gains, interest income, etc Real estate, bank balance, cash, jewelry, etc. Governing Act Income Tax Act, 1961 Wealth Tax Act, 1957...

Frequently Asked Questions (FAQs)

What is wealth tax?...