Some More Bad News after Budget 2012 - Change to Wealth tax Rules in India

If you thought that the previous article on “Service Tax Increase” was bad news, then I am sorry to say that, you are mistaken my friend. This year, Wealth Tax is another area where the finance ministry has landed a solid right hand blow on the face of the Indian Citizen. Though the middle class Indian doesn’t have enough assets to qualify to pay Wealth Tax, even the higher income group, that pays a higher tax amount on their income and manages to accumulate wealth isn’t going to be happy with this new rules…

Do you remember the Article Are you an Innocent Tax Evader? In that, we had covered some basic mistakes we do as Tax Payers. We had covered Wealth Tax as one of those innocent mistakes. If you do not remember, please revisit the post to jog-up your memory.

Wealth Tax – To Revise:

All resident Indians are required to pay wealth tax and file a wealth tax return if their net wealth from assets exceeds Rs 30 lakh.

The Assets in this case include land, property, jewelry, cars, aircrafts, yachts and cash in excess of Rs 50,000. For Resident Indians (Resident Ordinary Residents - ROR), wealth tax is payable on all these assets, irrespective of whether they are located in India or abroad. For Non Resident Indians (NRIs), wealth tax is payable only on those assets that are located in India.

What is the New Change to this Law on Wealth Tax?

A new clause has been added to section 17 of the Wealth Tax Act. This section deals with 'wealth escaping assessment.' Under this section, if a taxpayer fails to disclose certain assets and pay wealth tax on those assets, the assessing officer has the right to open the taxpayer's returns for the last 4 years. In addition, if this net wealth that has escaped assessment is likely to be more than Rs 10 lakh, the assessing officer has the right to open returns for the last 6 years.

Also, now the new clause says that if the net wealth of the taxpayer that has escaped wealth tax includes any asset, including financial interest in any entity, located outside India, the assessing officer would have the right to go back and open tax returns of the last 16 years.

What is the Purpose of this New Ruling?

The intention of the new provisos is to bring to book all those tax evaders with significant assets in offshore locations or global tax havens.

Are you saying, Anand I am an NRI. I work in Gulf/USA/Singapore/Malaysia etc and so, this doesn’t affect me???

Unfortunately, as with any ruling by the Indian Finance Ministry, this is going to affect those NRIs too who are returning to India after a few years stay abroad.

Let us say, you worked in the USA for 4 years and are coming back to India. You bought some assets in the USA and still own them. While NRIs who have returned to India are exempt from taxes on their global assets for the first two years after they return (because their status is Resident but Not Ordinary Resident, RNOR, for those two years), they become Resident Ordinary Residents thereafter and must pay wealth tax on all assets including global assets.

So, essentially this becomes double taxation – Assets you purchased after paying all due taxes in the country of origin of your income, you are taxed on the same stuff after you return to India.

Now that is Sweet Right??? More Bad News makes life all the more better. Doesn’t it???