- While income tax is payable on the total taxable income earned by an individual in one year, wealth tax is paid on the possession of certain assets which fall under the Wealth Tax Act of the Indian taxation system. A wealth tax is a tax on the accumulated stock of purchasing power, in contrast to income tax, which is a tax on the flow of assets (a change in stock). Wealth tax is a direct tax levied on the ownership of certain assets by individuals and Hindu Undivided Families (HUFs) even though these assets may not generate any income. It is governed by the Wealth Tax Act, 1957.
- Under the Act, the tax is charged in respect of the wealth held during the assessment year by the following :-
- 1. Individual
- 2. Hindu Undivided Family (HUF)
- 3. Company
- Can ignore Wealth Tax?
- Penalties related to ignorance of wealth tax are much more severe as compared to that of income tax. Remember that ignoring wealth tax can lead to serious problems for a taxpayer, with the penalty ranging from 100% to 500% of the unpaid tax, and in extreme cases, even jail.
- What is Taxable?
- The assets which are taxable under the Wealth Tax Act are:
- 1.Residential property other than one house
- 2.Guesthouse
- 3.Farmhouse
- 4.Cars (unless used for commercial hiring)
- 5.Precious metals including those in the form of jewellery
- 6.Gold
- 7.Air crafts, yachts, boats
- 8.Urban land
- In addition to these, all assets transferred by individuals to their minor children and to a spouse for inadequate consideration also attract wealth tax. cases, even jail.
