If you are liable to wealth tax, you would have just finished filing returns for it. From next year, the list of assets and the threshold value for which you would be liable to pay wealth tax may increase. So not only would the amount you pay in tax would increase, but also your paperwork while filing returns, especially if you are interested in the collection of antiques, drawings, sculptures, stamps and works of art. The draft direct taxes code (DTC) proposes to bring them under the wealth tax ambit.
What comes under wealth tax at present?
According to the prevailing Income-tax Act, 1961, persons having taxable wealth of at least Rs 30 lakh as on 31 March of each year are liable to pay wealth tax. But this wealth is calculated only on certain specified assets, including residential houses or commercial buildings, urban land, jewellery, motor cars, yachts, boats and aircraft and also cash in hand in excess of Rs 50,000.
At present, if you inherit certain collectable items, it is regarded as a gift item, which is not taxed. Only when they are sold, they attract tax.
What’s the proposal?
The DTC, which will come into effect from next year, proposes to include archaeological collections, such as drawings, paintings, sculptures and other works of art as part of an individual’s wealth.
The draft DTC proposes to to increase this threshold limit of Rs 30 lakh to Rs 1 crore. But all this will become a reality only if the draft is passed by the government and implemented.
Ambiguity over calculation
Although the DTC proposes to bring collectable assets under the ambit of wealth tax, the proposal means that these items will have to be declared along with their market values. But since most of these items are saleable in the open market and are open to bidding and auction, assigning a value for calculating the wealth tax will be a challenge for authorities.
Status of coins not defined
Moreover, the DTC is silent on coins issued by the Indian government on special occasions. Coins have their own value inscribed on them. But being an important part of collectable items in India, these often fetch higher value when auctioned. The DTC does not mention whether these, too, will become part of an individual’s wealth.