Income Tax Rules

The government of India imposes an income tax on taxable income of all persons including individuals, Hindu Undivided Families (HUFs), companies, firms, association of persons, body of individuals, local authority and any other artificial judicial person. Many jurisdictions tax the income of individuals and business entities, including corporations. Generally the tax is imposed on net profits from business, net gains, and other income.

Wealth Tax Rules

While income tax is payable on the total taxable income earned by an individual in one year, wealth tax is paid on the possession of certain assets which fall under the Wealth Tax Act of the Indian taxation system. A wealth tax is a tax on the accumulated stock of purchasing power, in contrast to income tax, which is a tax on the flow of assets (a change in stock). Wealth tax is a direct tax levied on the ownership of certain assets by individuals and Hindu Undivided Families (HUFs) even though these assets may not generate any income. It is governed by the Wealth Tax Act, 1957.

Under the Act, the tax is charged in respect of the wealth held during the assessment year by the following :-
  • Individual
  • Hindu Undivided Family (HUF)
  • Company

Can ignore Wealth Tax?
Penalties related to ignorance of wealth tax are much more severe as compared to that of income tax. Remember that ignoring wealth tax can lead to serious problems for a taxpayer, with the penalty ranging from 100% to 500% of the unpaid tax, and in extreme cases, even jail.

What is Taxable?
The assets which are taxable under the Wealth Tax Act are:
  • Residential property other than one house
  • Guesthouse
  • Farmhouse
  • Cars (unless used for commercial hiring)
  • Precious metals including those in the form of jewellery
  • Gold
  • Air crafts, yachts, boats
  • Urban land
  • Cash in hand in excess of Rs 50,000.
In addition to these, all assets transferred by individuals to their minor children and to a spouse for inadequate consideration also attract wealth tax. cases, even jail.

What is exempt from Wealth Tax?
Following assets are exempt from the purview of Wealth Tax: >
  • any one residential property
  • commercial property
  • financial assets like shares, mutual funds, debentures.
  • any outstanding loan taken to buy the asset.
  • any residential properties which are rented for at least 300 days in a year. Remember that the rental income from such property is counted under Section 24 as "Income from House Property" and taxed under Section 24.
In India, the extent of taxable wealth for individuals differs with their residential status. For resident Indians, net taxable wealth will include all assets in India and abroad whereas for non-resident Indians, net taxable wealth includes only those assets which are in India.
 

How To Save Your Tax?

INVESTMENTS
Equity Linked Saving Schemes (ELSS) provide a good avenue for capital appreciation and tax benefit under section 80C of the Income-Tax Act, 1961.

Benefits of ELSS

  • Tax Benefits
    •        - Deduction under section 80C 
           - No tax on Capital gains
           - Dividends are tax free in the hands of investor
  • Lock in period (3 years)
    •        - Lowest among all tax saving instruments under  
             section 80C
           - Long enough to minimize market volatility
  • Better Return
    • - Compared to all tax saving instruments under sec 80C
                   
 

Tax Slabs

A tax that governments impose on financial income generated by all entities within their jurisdiction. By law, businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund.

The Income Tax Department is the biggest revenue mobilizer for the Government. Income tax is a key source of funds that the government uses to fund its activities and serve the public.

NRI Taxation

An Indian Citizen who stays abroad for employment/ carrying on business or vacation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident.

Liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status. Residential Status is determined on the basis of physical presence i.e. the number of days of stay in India in any year.

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