Wealth Tax (Abolished)
Tax & DeductionsIndia abolished Wealth Tax in 2015 (effective AY 2016-17). Previously, individuals with net wealth exceeding Rs 30 lakh paid 1% wealth tax annually. The abolition eliminated the tax on net worth accumulation. Understanding its history helps contextualise why certain asset classes were preferred historically.
In detail
Wealth tax history:nApplicable until AY 2015-16nRate: 1% on net wealth above Rs 30 lakhnIncluded: property (beyond residential use), cars, boats, jewellery, cash above Rs 50KnExcluded: productive assets (stocks, mutual funds, bank deposits, business assets)nnWhy abolished: difficult to administer, low revenue collection, encouraged under-declaration of assetsnnPost-abolition impact:nSurcharge on high income increased (instead of wealth tax) -- simpler to collectnProperty investment accelerated post-abolition (no annual penalty on holding)nJewellery holdings: previously penalised, now only capital gains on salennKey: Stocks, mutual funds, bank deposits were always exempt from wealth tax -- another reason why financial assets were more tax-efficient than physical assets.
Real-life example
Historical: A person with Rs 2 Cr flat (personal use -- exempt), Rs 50L plot (excess property), Rs 30L jewellery, Rs 20L FD paid wealth tax on: Rs 50L plot + Rs 30L jewellery - Rs 30L exemption = Rs 50L. At 1%: Rs 50K wealth tax annually. Post-2015 abolition: no wealth tax. Same person now only pays income tax on FD interest and capital gains on property sale.