If you possess wealth of over Rs 1 crore, collect art works or invest in stocks of foreign companies, then be prepared to deal with the Income Tax department soon as finance minister Pranab Mukherjee is likely to announce a wealth tax on these items in the Budget 2012.
The proposed Direct Taxes Code, which was expected to replace the existing Income Tax Act in 2012, has proposed to impose 1% tax on net wealth in excess of Rs 1 crore. The rate may seem harmless, but the trouble is that it has included archaeological collections, drawings, paintings, sculptures, wristwatches worth over Rs 50,000, besides cash in hand above Rs 2 lakh, among other things, into the list that forms wealth. In short, the high net-worth individual (HNI) is in for some taxing times.
Although the Direct Taxes Code Bill is being scrutinized by a Parliamentary Standing Cpmmittee, some of the proposals to expand the ambit of the wealth tax are likely to be incorporated in the Budget for 2012-13, pending approval of the DTC.
Under the existing law, the threshold level to kick in the wealth tax provisions is Rs 30 lakh. However, in the existing provision, items like watches, paintings and sculptures and deposits with foreign banks are not included.
According to HNIs and the experts who manage their money, these seemingly innocent additions to the list in the new tax code bill are likely to make life difficult for them. There would be disputes over the valuations of these pieces with the IT department as there is no uniform method to value them.
This could almost result in a throwback to an era when an encounter with the I-T officials used to give people sweaty palms. Sadly, it may also have an adverse impact on individuals' appetite for collecting artworks and artefacts, a trend slowly emerging in the country, with unintended victims being budding artists and tribal artisans.
Besides, subjectivity also creeps in. "The onus of getting the valuation of the assets lies with the owner. He can't feign ignorance on the value of his assets for not paying the tax," says Amitabh Singh, tax partner, Ernst & Young. That is where the problem lies. Even if you value the article with an expert, an IT official can always challenge your claim, as there is no uniform way to calculate the value of paintings or precious artefacts.
"The move to include watches, archaeological collections, drawings, paintings, sculptures and suchlike would actually end up harassing people. There will be disputes over revaluation of old watches, art objects and other art works. The mechanism to correctly value these things is not in place as we have very few qualified honest valuers of international repute in this country," says a tax expert on the condition of anonymity.
The proposed Direct Taxes Code, which was expected to replace the existing Income Tax Act in 2012, has proposed to impose 1% tax on net wealth in excess of Rs 1 crore. The rate may seem harmless, but the trouble is that it has included archaeological collections, drawings, paintings, sculptures, wristwatches worth over Rs 50,000, besides cash in hand above Rs 2 lakh, among other things, into the list that forms wealth. In short, the high net-worth individual (HNI) is in for some taxing times.
Although the Direct Taxes Code Bill is being scrutinized by a Parliamentary Standing Cpmmittee, some of the proposals to expand the ambit of the wealth tax are likely to be incorporated in the Budget for 2012-13, pending approval of the DTC.
Under the existing law, the threshold level to kick in the wealth tax provisions is Rs 30 lakh. However, in the existing provision, items like watches, paintings and sculptures and deposits with foreign banks are not included.
According to HNIs and the experts who manage their money, these seemingly innocent additions to the list in the new tax code bill are likely to make life difficult for them. There would be disputes over the valuations of these pieces with the IT department as there is no uniform method to value them.
This could almost result in a throwback to an era when an encounter with the I-T officials used to give people sweaty palms. Sadly, it may also have an adverse impact on individuals' appetite for collecting artworks and artefacts, a trend slowly emerging in the country, with unintended victims being budding artists and tribal artisans.
Besides, subjectivity also creeps in. "The onus of getting the valuation of the assets lies with the owner. He can't feign ignorance on the value of his assets for not paying the tax," says Amitabh Singh, tax partner, Ernst & Young. That is where the problem lies. Even if you value the article with an expert, an IT official can always challenge your claim, as there is no uniform way to calculate the value of paintings or precious artefacts.
"The move to include watches, archaeological collections, drawings, paintings, sculptures and suchlike would actually end up harassing people. There will be disputes over revaluation of old watches, art objects and other art works. The mechanism to correctly value these things is not in place as we have very few qualified honest valuers of international repute in this country," says a tax expert on the condition of anonymity.
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