BLOG on Income Tax Management for - AY 2022-23 & 2023-24

Items Completely Exempt from Wealth Tax for an NRI

Only Non-Productive Wealth Is Liable To Wealth Tax From Assessment Year 1993-94.
Specific Exemptions for NRI under Section 5 of the Wealth Tax Act.
Clubbing Of The Wealth With The Income Of The Parents
Assets And Tax Outside India Are Not To Be Calculated While Computing Taxable Wealth Tax

1. Only Non-Productive Wealth Is Liable To Wealth Tax From Assessment Year 1993-94.

The Finance Act 1992 made fundamental changes in the scheme of the levy of wealth tax in India from the Assessment Year 1993-94. Wealth tax is leviable on the net wealth tax of individuals, HUFS and companies only. All items of wealth tax are not liable to wealth tax now. Under the provisions of Section 3 wealth tax is chargeable at the flat rate of 1% of the amount by which the net wealth tax exceeds Rs.15 lakhs with effect from Assessment Year 1993-94. From the AX. 2010-2011 the wealth- tax exemption limit is increased from Rs.15 lakh to Rs.30 lakh. The expression “net wealth” refers to assets only. The expression “assets” according to a new clause (ea) of Section 2 (2) of the Wealth Tax Act .as amended by the Finance (No. 2) Act, 1998, with effect from the A.Y. 1999-2000 meant, broadly speaking, the following types of nonproductive assets on which wealth tax is leviable:

Any guest house and any residential building or land appurtenant thereto (other than any residential property let out for a minimum of 300 days), a farm house situated within Rs.25 kms from the local limits of any municipality. However, it does not include a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a Director who is in whole time employment, with a gross annual salary tf less than Rs. 25 lakh. Likewise, any house for residential or commercial purposes which forms part of the stock-in-trade is also not considered liable to wealth tax. Similarly, any house which the assessee may occupy for the purpose of any business or profession carried on by him is also exempt from wealth tax.
Motor cars (other than those used by the assessee in the business and running them on hire or as stock-in-trade)
Jewellery, furniture, utensils or any other article made fully or partially of gold, silver, platinum or any other precious metal or any alloy containing one or more of these precious metals.

Where, however, any of these items is used by the assessee as a stock-in-trade, it is not liable to wealth tax.
Yachts, boats, aircrafts (other than those used by the assessee for commercial purposes)
Urban land
Cash in hand in excess of Rs.50,000 for individuals and NUFS and in the case of other persons any amount not recorded in the books of account.

Thus it is clear that other assets which are not covered under the above category are not liable to wealth tax in India. Thus some of the important items of wealth which were earlier either fully taxable or partially taxable to wealth tax are now completely exempt from the purview of wealth tax with effect from Assessment Year 1993-94:

Bank fixed deposits
Units of the UTI
Units of Mutual Funds
Government securities
Loans and advances
Shares and debentures
Industrial assets, etc.

The expression “Urban land” means any land situated in any area comprised within the jurisdiction of the Municipality or a Cantonment Board which has a population of not less then `.10,000, as per the latest published figures or any land situated in any area within 8 km. from the local limits of any Municipality or Cantonment Board as is notified by the Central Government. However, urban land does not include land on which construction of a building is not permissible under any law for the time being in the area in which such land is situated or land occupied by any building which has been constructed with the approval of the appropriate authority or any ‘unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him or any land held by the assessee as stock-in-trade for a period of 10 years from the date of its acquisition.

2. Specific Exemptions for NRI under Section 5 of the Wealth Tax Act.

Section 5 of the Wealth Tax Act contains a list of certain specific exemptions. The long list of various exemptions, with effect from the Assessment Year 1993-94, has been curtailed. Thus from a practical point of view certain important general types of complete exemptions from wealth tax under Section 5 of the Wealth Tax Act are the following:

Any property held by the taxpayer under trust or any other legal obligation for any public purposes of charitable or religious nature in India.
The interest of the assessee in the co-parcenary property of any HUF of which he is a member. Co-parcenary means joint heirship.
Any one building in the occupation of a Ruler.
One house or part of a house or a plot of land not exceeding 500 sq. meters in area belonging to the assessee from the A.Y. 1999- 2000.
Jewellery in the possession of a former Ruler.
In the case of an NRI who is ordinarily residing in a foreign country, who, on leaving that country, has returned to India with the intention of permanently residing therein, money or the value of assets brought by him to India and the value of assets acquired by him out of such money within one year immediately preceding the date of his return or at any time thereafter.

However, this exemption would apply only for a period of seven successive assessment years commencing on the Assessment Year next following the date on which such a person returns to India. As regards NRI Account Deposits and FCNR Deposits, as also shares, etc., held by the NRI they are not considered as “Assets” and are thus absolutely exempt from wealth tax. Thus an NRI is not liable to any wealth tax at all on shares, units, bank deposits, government securities, gold bond deposits, loans and advances, etc. held by him.

3. Clubbing Of The Wealth With The Income Of The Parents

Under the provisions of Section 64 (IA) of the Income Tax Act, as described elsewhere in this book, the wealth tax of a minor child (other than a disabled child) is also to clubbed under Section 4 of the Wealth Tax Act with the wealth of that parent whose wealth is higher. Where, however, the marriage of the parents of the minor child does not subsist, the clubbing of the net wealth tax of the child has to be done with the net wealth tax of the parent who maintains the minor child in the relevant previous year.

4. Assets And Tax Outside India Are Not To Be Calculated While Computing Taxable Wealth Tax

It is provided in Section-6 that in computing the net wealth tax of an individual who is not a citizen of India or a Hindu Undivided Family not resident in India or resident but not ordinarily resident in India, during the year ending on the valuation date, the following items are not to be taken into account:
The value of the assets and debts located outside India and the value of the assets in India represented by any loans or debts owing to the assessee, in any case where the interest, if any, payable on such loans or debts is not to be included in the total income of the assessee under Section 10 of the Income Tax .

Generally speaking, a non-resident would be liable to wealth tax on non-productive Indian assets only. Here also those assets which are located in India but which are represented by loans or assets in respect of which interest is totally exempt, are not to be considered taxable assets for the purposes of wealth tax.