Chitleen K Sethi explains how wealth tax is calculated and why parties are opposing it.
Is imposition of wealth tax on farm land a new proposal? Is it an all India proposal or only specific to Punjab?
It is an all India proposal and not specific to Punjab alone. Broadly anyone or everyone who has assets worth beyond Rs 30 lakh is liable to pay wealth tax. This includes farm land,which is not being used for agriculture purposes. Till now,however,the wealth tax provisions have not been seriously invoked by income tax authorities the agency authorised to collect the tax.
How old are the provisions in law regarding wealth tax on farm land?
The current provisions applicable on agriculture land are more than two decades old. The Wealth Tax Act is as old as 1957. Existing provisions classify agriculture land as rural agriculture land and urban agricultural land. Rural agriculture land is exempt from being counted as a capital asset for taxation purposes,including wealth tax. However,urban agriculture land is considered to be a capital asset and invites imposition of wealth tax.
How do the taxation authorities define urban agriculture land?
Currently,urban agriculture land is agricultural land situated in an area within the jurisdiction of a municipality having a population of not less than 10,000 or situated in any area within such distance not exceeding 8 kms from the local limits of a municipality. However,for the purpose of identifying a particular piece of land as urban agriculture land,such municipalities and such population was to be notified by the Centre specifically,which rarely happened. Till now,no one really bothers to either collect or pay wealth tax. Other than a handful of notices in Jalandhar,there are no known cases of the IT department having made any effort to collect the tax.
What is the new aspect of wealth tax in the Finance Bill 2013 that is being vehemently opposed?
The Finance Bill 2013 only streamlines or tightens the wealth tax provisions with regard to urban agriculture land. Firstly,it clearly defines the land on which the tax will be applicable,which will not need the notification of the Centre as before. The land proposed to be included will be within 2 kms of any municipality,which has a population more than 10,000 and less than one lakh,within 6 km of a municipality with a population more than 1 lakh but less than 10 lakh and within 8 kms of a municipal area with a population beyond 10 lakh. This helps the IT department to assess on its own who is liable to pay wealth tax. Also,it now clarifies that the distance from the municipal limits is to be counted as the crow flies.
Has the rate at which wealth tax has to be calculated been increased?
No,it remains one per cent of the cost of the land calculated on the basis of collectors rates.
Why has Punjab government and Congress reacted so strongly?
Punjab is primarily an agriculture state and the main asset of most people is agriculture land. Also,here,the rate of urbanisation has been the highest in the past decade. Collectors rates have been increased by the state government almost every year. The cost of land in the periphery of urban areas has multiplied several fold and thus,the wealth tax,which an urban agriculture land owner in Punjab will have to pay,will be subsequently very high. It will be much mmore than the owner can ever think of earning from the land. In Punjab,it will range from Rs 30,000 annually to even Rs 1 lakh depending on the location of such land.
What per centage of land or per centage of farmers may get affected by it ?
Though the government is still in the process of getting area wise details,its first set of calculations show that almost 85 per cent of the agriculture land in Punjab will come under the purview of the wealth tax. This is because most of the smaller towns also have a population of over 10,000.