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Draft   to   enact   procedure  
TX.03   ---   Procedures   to   improve   Wealth   Tax   collection






DRAFT-1 : Improving wealth tax collection on plots/flats

 
Section   1   :   Definition of solo and family for the purpose of wealth tax valuation
1.1 Any individual citizen, for the purpose of wealth tax, can register himself as a solo, in which case he cannot be part of a family. Alternatively, he may be a head or a member of at most one family.
1.2 A family will have exactly 1 head of the family, who cannot be solo or cannot be head/member of any other family. The tax-ID of the family will be same as the tax-ID of the head of the family. The head may be male or a female.
1.3 If the head is male, then any individual who is his wife (at most one wife), parent, child (at most 2 male children, or 1 male and 2 female children or at most 3 female children), unmarried (incl divorcee/widow) sister, sister-in-law, parents, nephews, unmarried (incl divorcee/widow) neices, grand parent, grandsons, unmarried grand daughters, paternal uncle and paternal aunt may be a member of the family.

If the head of the family is a married female, or a widow who declares herself as "still attached to ex-husbad's family" then any person who is his husband or his husband's parent, child (at most 2 male children, or 1 male and 2 female children or at most 3 female children), unmarried (incl divorcee/widow) sister, sister-in-law, parents, nephews, unmarried (incl divorcee/widow) neices, grand parent, grandsons, unmarried grand daughters, paternal uncle and paternal aunt may be a member of the family.

If the head of the family is a unmarried or divorcee or widow who declares herself as "NOT attached with ex-husband's family", then any person who is her child (at most 2 male children, or 1 male and 2 female children or at most 3 female children), unmarried (incl divorcee/widow) sister, sister-in-law, parents, nephews, unmarried (incl divorcee/widow) neices, grand parent, grandsons, unmarried grand daughters, paternal uncle and paternal aunt may be a member of the family.

The member MUST satisfy following additional consition to be the member of the family :
  • he MUST not be member/head of any another family, must not have registered himself as solo
  • If the relative is above 18, he must agree to be member of the family
  • If the relative is below 18, if both parents are still married and alive, then BOTH parents must agree to make him member of the family, and BOTH parents must be member of the same family. If only one parent is alive, his agreement would suffice provided he too is the member of the SAME family. If no parent is alive, the persmission of custodian will suffice, and the custodian need NOT me member of the same family. If parents are divorced, then the permission of the parent who is custodian will suffice, provide he too is member of the same family.
  • 1.4 The head of a family may remove any member from his family any time, and the effect will come in the next return. Any member may walk out of a family any time, and teh effect will come in the next return.
    1.5 The individual, in his wealth tax return, will specify his tax-ID and indicate if he is solo, head of the family or member of a family. If he is head of the family, he will specify the tax-IDs/names and relation of ALL the family members, and must have signature of the member that he has agreed to be the member. If he is member of a family, he will specify the tax-ID/name of the head of the family, and must have signature of the head he is member of the family. Using this information, the CGTC can verify that :
    1. No solo is head/member of a family AND
    2. No person is head/member of two families
    The CGTC will assume that members specified are indeed related, and can initiate a check ONLY if information to contrary is recieved.
     
    Section   2   :   Classifying property as TypeI, TypeII or TypeIII for the purpose of wealth valuation
    2.1 Exemption for senior citizens

    If the person is senior citizen above 65 yrs, his one house below Rs 40 lakhs of published value will be COMPLETELT exempt from wealth tax.
    2.2 A solo or headof the family will enclose the list of properties they own in a numbered list, the flat-ID of the plots/flats as given by district local land record officer, and the tax-IDs of each plot/flat. The ordering can be done as he may wish.
    2.3 Determine the published value : For each town/ward and area, the CGTC will publish per sqm land price and per sqm construction price. The CGTC will prepare the list by considering construction price nation wide and land price in that area by reviewing sales in past 2 years. For each plot/flat, the land record officer will publish the associated land area and construction area. The owner may take a depreciation on construction price at rate of 2% a year, but there will be no depriciation on land price. The owner will use this price to decide the PUBLISHED price of his plot/flat.
    2.4 A solo can mark properties of published price worth Rs 40 lakhs as TypeI. A familiy can mark its properies totally worth below Rs (20 + number_of_members*20) as TypeI. If a property's value partly exceeds the limits, it will be labeled as TypeII. If a property's value completely falls outside the limits, it will be labeled as TypeIII.

    Examples :
    1. Say a solo owns 3 flats whose published value is Rs 20 lakhs, Rs 10 lakhs and Rs 8 lakhs, totalling Rs 28 lakhs. Then ALL three flats may be labeled as TypeI.
    2. Say a solo owns 3 flats whose published value is Rs 20 lakhs, Rs 15 lakhs and Rs 10 lakhs, totalling Rs 45 lakhs. Then two flats may be labled as TypeI and but the other must be labled as TypeII.
    3. Say a family has 4 members. Then exemption limit is Rs 1 cr. Say the family has 4 flats of Rs 40 lakhs each. Then any two flats can be labelled as TypeI, one flat may be labelled as TypeII and one must be labeled as TypeIII.
    4. Say a family has 5 members. Then exemption limit is Rs 1.2 cr. Say the family has 2 flats of Rs 1.2cr and Rs 40 lakhs each. If the head of the family lables first flat as TypeI, the second flat has to be labled as TypeIII. But if the head decides to label his smaller flat as TypeI, the second flat will be labled as TypeII.
    Note : Of the properties a sol/family has, and they combined value is above Rs 1.2cr, the solo or the head has several ways to decide which properties he intends to label as TypeI, TypeII or TypeIII. He may chose any option he pleases.
    2.5 If the property is owned by persons, who are NOT members of same family, it will be marked as TypeIII.

    Further clarification :
    All flats/plots, where even one owner is a company, trust, HUF or a non-individual entity, it will be marked as TypeIII. And if a property is owned by two "related" person, such as say husband-wife or even father-son, but even if one of them is registered as solo, or if he registered in a different family, the property will get marked as TypeIII.
     
    Section   3   : Valuation of flats/plots, and tax rates.
    3.1 The owners of TypeIII property MUST specify the MARKET value of the property, as disclosed by the owners. The wealth tax rate will be 1% per year of the market value. If the officer (appointd by CGTC) believes that the value disclosed by the owner is too low, he may pay 25% more than value decided by the owners and possess the plot/flat. But the officer can make an offer ONLY after a PRIVATE party pays 140% of the disclosed value upfront. In case more than one private party makes an offer, the officer will accept the payment from one which gives highest, keep 10% of the money offered and pay the rest to the existing owners.
    3.2 If the property is TypeI, then solo or head of the family which owns the property will decide the value using following procedure :
    1. He may take published value of the plot/flat as the value, and pay a tax of 0.2% per year on it.
    2. He may take semi-indexed value, and pay a tax of 0.2% on the flat. The semi-indexed value will be value calculated with index half the index used for capital gains tax purpose.
    3. He may decide to pay tax by the market value. In this case, the owners will decide and state the market value, and pay a tax of 0.2% on that value. But if the officer appointed by CGTC decides that flat's market value is much above disclosed value, he may buy the flat after offering 125% of the value disclosed by the owners. The officer make an offer ONLY after a private party offers him over 140% of the disclosed price.
    3.3 If the property is TypeII,
    1. then the solo or the head of the family which owns the property MUST decide and disclose the market value. If the officer (appointd by CGTC) believes that the value disclosed by the owner is too low, he may pay 25% more than value decided by the owners and possess the plot/flat. But the officer can make an offer ONLY after a PRIVATE party pays 140% of the disclosed value upfront to the officer.
    2. The tax will 0.2% of the value below exemption, and 1% of the value above exemption.
    Example: Say a family of 4 owns 3 flats, whose published value is 80 lakhs, 50 lakhs and 30 lakhs. Then exemtion is Rs 1cr. Say the head decides to take label 1st flat as TypeI, second as TypeII and third as TypeIII. Now out Rs 50 lakh, Rs 20 is exempt. So 40% value is below exemption limit and 60% is above exemption limit. Now for wealth tax purposes, he WILL HAVE to decide and disclose the market value of the 2nd flat as it is TypeII. Say he decides market value as Rs 60 lakhs. Then on 40% of the value, he will pay 0.2% tax and on remaining 60%, the tax rate will be 1%. So wealth tax will be
    (60 * 40% * 0.2%) + (60 * 60% * 1%) lakhs = (24 * 0.2%) + (36 * 1%) lakhs
    = Rs 4800 + Rs 16000 = Rs 20800 per year.
     
    Section   4   : Defaults


    4.1 If a person does NOT have funds to pay the wealth tax, then also he MUST file a return, and state a delay in payment.
    4.2 If a person has NOT filed wealth tax return for the flat he owns for over 6 months after the due date, the CGTC will freeze the sale of the property. If he has NOT filed the return for over 3 years, the CGTC will present him before Jury, who may impose a file of upto 15% of the published value of the flat, plus pending tax plus interest.
    4.3 In case of inability to pay the wealth tax, the CGTC, or officer he appoints, will allow deferment with annual interest of 1.5 times the prime lending rate as disclosed by RBI, till the pending taxes and interest cross 1/2 the published value. In such case, the officer will confiscate the flat/plot, auction it off, keep that pending taxes including interest, and give the rest to the owners.
     
    Section   5   :   Wealth tax on Gold/Silver
    5.1 Every person, in his annual wealth tax return, MUST disclose the amount of gold, silver he owns. The value, for the purpose of wealth tax, of gold/silver will as per the average yearly price given by CGTC. The wealth tax will be as follows :
  • If the owner is individual, male or female, tax rate will be 0.1% on gold/silver upto Rs 500,000, and will be 1% there after.
  • If the owner is non-individual, such as HUF, trust, company etc, the tax rate will be 1% of the value
  • 5.2 If the person has held different amount of gold during the year, the wealth tax due will be proportionate.

    Example: Say year's start is on 1-Apr-1990. Say a person
    had 1000g of gold on 1-Apr-1990
    he sold 500gm on 1-May-1990
    bought 800gm on 15-Sep-1990
    sold 600gm on 1-Jan-1991
    had 1000 - 500 + 800 - 600 = 700gm on 31-Mar-1991

    Then the person had held
    1000gm of gold from 1-Apr-1990 to 1-May-1990 i.e. 30 days
    500gm of gold from 1-May-1990 to 15-Sep-1990 i.e. 137 days
    1300gm of gold from 15-Sep-1990 to 1-Jan-1991 i.e. 108 days
    700gm of gold from 1-Jan-1991 to 31-Mar-1991 i.e. 90 days
    [If the person had several gold transactions on SAME day, the highest balance on that day will be used]
    Now if CGTC disclosed the yearly mean gold price as Rs 700/gm, then balance of the person is
    Rs 700,000 of gold from 1-Apr-1990 to 1-May-1990 i.e. 30 days
    Rs 350,000 of gold from 1-May-1990 to 15-Sep-1990 i.e. 137 days
    Rs 9100,000 of gold from 15-Sep-1990 to 1-Jan-1991 i.e. 108 days
    Rs 490,000 of gold from 1-Jan-1991 to 31-Mar-1991 i.e. 90 days
    i.e. Rs 30,02,000 is the yearly average.
    So tax will 0.1% on first Rs 500,000 and 1% on next Rs 25,02,000 i.e. Rs 500 + Rs 25020 = Rs 25520.
    5.3 If the gold/jewellery has multiple owners, for the purpose of wealth tax, it will be assumed as property of 1st owner, and wealth tax will be due on him ONLY.
     
    Section   6   :   Wealth tax on shares
    6.1 The wealth tax on shares/bonds may be paid by company or individual share holders. If the company decides and declares to pay, the shareholders need NOT pay any wealth tax. If a company has declared to pay wealth tax, it must give 1 year's notice before it decides to waive the responsibility, in which case the CGTC will collect wealth tax from the shareholders.
    6.2 If the wealth tax is paid by the company, it will 1% market capitalization based on the average of daily mean prices as reported by the stock exchange. The wealth tax that the company has paid on flats/plots and gold it owns can be substracted from the wealth tax due on shares.
    6.3 If the wealth tax is paid by the shareholder, the CGTC will collect it from deemat providers. The tax rate will be 0.03% on daily highest balance of a scrip multiplied by the daily highest price. And the days on which the market was closed, the price of previous day on which share market was open will be taken. Further, the wealth tax paid by the company on land/plots etc will NOT be deductible.
    Example: Say a person had 1000 shares of a scrip on 1-4-2000. Say he bought 10000 on 1-4-2000 and then sold 9000 on same day. Then highest balance on 1-4-2000 was 11000 shares. say highest price on that day was Rs 200. So property tax due on that day will be (Rs 200 * 11000 * 0.03%) = Rs 660.
    6.4 The deemat providers will calculate the wealth tax on daily basis, and inform CGTC on weekly basis. The deemat providers will pay the tax to CGTC on monthly basis, and they may collect it from shareholder later or earlier. Deemat providers may freeze the account of a shareholder if he refuses to pay the wealth tax paid.
    6.4 The deemat providers may collect a service charge from the customer to meet the costs of payment and compliance. A deemat provider may refuse to deal with shares where company does NOT pay the wealth tax.
     
    Section   7   : Deduction in income tax for wealth tax paid


    7.1 The amount paid in wealth tax in a year, can be deducted from the taxable income in that year while calculating income tax.
    7.2 In case of the flat/plot is owned by solo, ONLY the solo can deduct the wealth tax from his own income. If the property is owned by a family, ONLY the head of the family, and NOT any other members, can deduct it from his income. If the property is owned by unrelated persons, each owner can deduct amount proportion to his ownership in the plot/flat from his income only.
    7.3 In case of wealth tax on gold, silver, shares and other goods, ONLY the first owner can deduct the wealth tax from his income. The other owners shall get no deduction.

    Section   8   : Other Details
    8.1 If the officer does not execute a procedure or ignores an instruction stated in this Act, a citizen can file a complaint before the Grand Jurors. In case there are is no Grand Jury, the citizens can appeal to the CM to setup a Grand Jury. But under this law, a citizen cannot complaint before CM, Corporators, CM, MLAs, PM, or MPs.
    8.2 The Jurors will judge this Act, guidelines, intentions as well as the facts related to the case