The Budget 2015-16 has sought to abolish wealth tax, which was perceived to have a high collection cost, while providing low yield to the exchequer. Currently, it is levied on an individual, HUF or a company, if the net wealth of such an entity exceeds R30 lakh on March 31.

Taxpayers are required to value assets as per wealth-tax rules for computation of net wealth. For certain assets such as jewellery, they are required to obtain a report from a registered valuer. The process is even more onerous for assesses residing overseas or in remote locations.

Hence, the proposal to remove wealth tax from FY16 is a win-win situation, both for taxpayers and the I-T department.

With the abolition of this tax, people may now take a relook at their wealth portfolio. They may now be induced into investing more in land in urban areas and other assets that were earlier subject to wealth tax.

Under the proposal, holding more than one plot of land in an urban area will be free from wealth tax and would attract capital gains tax upon sale only. At the time of the sale, the taxpayer will be able to reduce his I-T liability by investing in a residential house or specified securities and bonds provided the property was held for 36 months. Similarly, taxpayers with more than one house would be free from wealth tax, though the actual or fair-rental income will continue to be taxed under the I-T Act.

While the inclination towards investing in jewellery may still continue, alternatives may also be considered now. Taxpayers would be able to invest physical gold in the Gold Monetisation Scheme, which will allow them to earn interest on their metal accounts.

But all this doesn’t mean that the I-T department won’t be monitoring your wealth. The finance minister has indicated that information regarding assets that are currently required to be furnished in the wealth-tax return form will be captured in the I-T return form itself.

Taxpayers will have to wait for clarity on various aspects of the new rules. However, some amount of discipline in maintaining a detailed list of assets, and documents in support of the source of funds in buying these, is called for. Individuals who are not liable to wealth tax may find this change an additional burden, but the intent of tax authorities is to ensure a seamless flow of information to curb flow of black money and evasion of tax.

Transfer of assets within the family as a gift or through a will is a normal phenomenon in India. One needs to exercise abundant caution while reporting the same in the return forms. Determination of the ownership of assets within the family or the HUF may be a tedious task.

An individual needs to determine his wealth tax liability based on assessment of his taxable net wealth on last day of the year. It was, hence, possible to dispose of assets before the end of the year to avoid bringing the assets under wealth tax net. In line with reporting of foreign assets, it is likely that the reporting of assets in the I-T return will not be restricted to year-end assets held only — rather, the rules may seek to capture assets held at any time during the year.