The government's plan to widen the wealth tax net as proposed in the Direct Taxes Code (DTC) Bill may be part of an overall strategy to earn additional revenue, but experts warned that an opaque implementation structure could lead to a throw back of the earlier times when people were forced to sell assets to pay taxes on those very possessions.
The Bill, introduced in Parliament in August last year, stipulates that wealth tax will have to be paid even by a “minor”, if the asset is in child's name.
The Clause 114 of the Bill states that “the specified assets shall be deemed to be belonging to the persons if such assets are held by a minor, not being a person with disability or person with severe disability.”
The asset shall be included in the net wealth of the parent who is the guardian of the child.
Effectively, this would include inherited assets whose value would have appreciated considerably after having been passed onto families through generations, even though no income is earned from these.
While legislations do not apply on retrospective basis, the wealth tax provisions in the DTC Bill have left it ambiguous and open to interpretation which may result in its misuse.
“The Bill only says that if a person possesses certain assets, wealth tax will have to be paid on those. It does not say that the tax will be applicable only on products that are purchased after a certain cut-off date,” said Vikas Vasal, executive director at audit, research and consulting firm KPMG.
This could force assessees to hide assets, or even sell them.
“There is a lot of taboo associated with the wealth tax in India. Many believe that declaring assets, even if honestly, may attract attention of taxmen who may come knocking on your door,” said Surya Bhatia, chartered accountant and investment consultant.