Wealth tax, also called equity tax, net worth tax or capital tax was a 1% tax imposed on earnings of over Rs. 30 lakhs per annum of Indian residents, companies and Hindu Undivided Families (HUFs). It was a tax imposed on the net wealth as of 31st March i.e. total wealth (i.e. assets) minus the total liabilities – the assets sold during the financial year hence would not come under the purview of the tax. Moreover, under certain DTAAs or Double Taxation Avoidance Agreements, taxpayers would not have to pay the tax had it been already paid in another country.
Suppose you have made earnings of Rs. 50 lakh in a particular financial year. Therefore you would be taxed 1% on 20 lakh rupees (i.e. the amount above Rs. 30 lakhs), this requiring you to pay an additional tax of Rs. 20,000.
Now that you know the wealth tax meaning, let us see some of the rules and details associated with the tax.
Wealth tax in India was charged based on the Wealth Tax Act since 1951 – however the act, along with the wealth tax, was abolished under the Union Budget of 2015.
Instead, the government decided to impose a 2% additional surcharge levied on the super rich and proposed to increase the surcharge on the super rich from 2% to 12% (later accepted). Super rich persons here were defined as individuals who earned Rs 1 cr or higher (or companies that earned Rs 10 cr or higher). Companies with incomes between Rs. 1 crore and Rs. 10 crore would have to pay a surcharge of 7%. This move came in at a time when there were calls for rationalisation and simplification of tax structure in India to reduce tax collection costs and increase the ease of doing business in India.
The following are some of the primary reasons why wealth tax has been abolished in India –
The super rich are theoretically going to pay more because of the 2% surcharge. Therefore, there may be an impact on the number of ultra high income individuals wishing to stay back in the country.
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