Table of Contents
Introduction
Wealth tax was a direct levy on an individual’s or entity’s net wealth in India. It was introduced to ensure that high-net-worth individuals contributed proportionately to the economy. However, it was abolished in the Union Budget 2015-16 due to challenges in implementation and compliance. Instead, a surcharge on high-income earners was introduced to compensate for the revenue loss. This article explores the concept, applicability, exemptions, and its current relevance in India’s taxation system.
What Was Wealth Tax?
Imposed under the Wealth Tax Act, 1957, it targeted individuals, Hindu Undivided Families (HUFs), and companies possessing net wealth above a certain threshold. The tax was levied annually on assets such as:
- Residential and commercial properties (except those used for business)
- Cars, yachts, and aircraft
- Cash exceeding prescribed limits
- Jewelry, bullion, and precious metals
The tax rate was 1% on net wealth exceeding ₹30 lakh until its abolition.
Why Was Wealth Tax Abolished?
The government discontinued this tax in 2015 for several reasons:
- Low Revenue Collection: It generated minimal revenue compared to administrative costs.
- High Compliance Burden: Taxpayers and authorities faced difficulties in valuation and enforcement.
- Shift to Surcharge-Based Taxation: A 2% surcharge on individuals earning over ₹1 crore was introduced.
- Encouraging Investment & Growth: Removing the tax helped attract investments and prevent asset hiding.
Exemptions and Deductions
Certain assets were exempt before its abolition, including:
- One self-occupied residential house
- Assets held under charitable trusts
- Property owned for business or professional purposes
- Gold deposit bonds issued by the government
Current Taxation on Wealth in India
Though this tax no longer exists, high-value assets are still subject to taxation through:
- Capital Gains Tax: Profits from selling assets such as real estate, gold, and stocks are taxable.
- Property Tax: Local municipalities levy tax on real estate ownership.
- Surcharge on High-Income Earners: Individuals earning above ₹2 crore face surcharges ranging from 15% to 37% under income tax laws.
- Gift Tax under Income Tax Act: Gifts exceeding ₹50,000 from non-relatives are taxed as income.
Global Perspective on Wealth Tax
Some countries, such as France, Spain, and Switzerland, continue to impose similar taxes to curb inequality. However, many nations have abolished it due to challenges similar to those faced in India, opting instead for inheritance tax, estate tax, and progressive income taxation.
Future of Wealth Tax in India
While India does not have a direct wealth tax, discussions occasionally arise about reintroducing it to reduce wealth inequality. However, the government’s focus remains on income-based taxation, capital gains, and surcharges on high earners to ensure fair revenue collection without discouraging investments.
Conclusion
Wealth tax played a role in India’s taxation history but was discontinued due to inefficiency and compliance burdens. While it no longer exists, wealth remains taxable through capital gains, surcharges, and property tax. Understanding these alternative tax structures is crucial for financial planning and compliance.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.