Friday 30 December 2011

DOES OWNING REAL ESTATE INCREASE TAX BURDEN ?

 ALL  individuals and Hindu Undivided Families  whose net wealth  as on March 31 exceeds Rs 30 lakh is required to pay wealth tax at one per cent of the amount that exceeds Rs 30 lakh.

The good news is that wealth tax is payable only on what are termed 'unproductive assets'. Consequently assets such as shares, securities, mutual funds and fixed deposits, the 'productive assets', are exempted. Though there is a long list of items such as yachts, boats, aircraft, etc, that are subject to wealth tax, for our purposes we shall only consider assets that are commonly owned such as real estate, jewellery and cars.


House property
Just like in income tax law, one house is exempt from wealth tax. In other words, ownership of more than one house will attract wealth tax liability on the second house onwards. There are three exceptions. If a property is used for conduct of business or a profession or if it forms a part of stock-in-trade or has been rented out for at least 300 days in the year, wealth tax is not applicable on such property.

Also note that wealth tax is applicable on net wealth, after deducting any liabilities or debt owed to acquire the assets. Therefore, if any house subject to wealth tax has been purchased using housing finance, the value of the loan due is deductible while arriving at the figure of net wealth.

If you find yourself liable for wealth tax, merely transferring the asset to your spouse will not help. Clubbing provisions similar to those applicable in income tax law are also applicable in the case of wealth tax. Therefore, any assets gifted to spouse, minor child or son's wife will be, notwithstanding the gift, deemed to belong to the taxpayer.

TN the 2nd most Transaparent Real Estate Market

According to a report by real estate services firm Jones Lang LaSalle Tamil Nadu ranked second in the Indian Real Estate Transparency Index 2011 among 20 states surveyed.

The ranking was based on factors such as availability of market information, reforms in urban local bodies, progressive business environment, protection of property rights and inclusive and sustainable development.

Tamil Nadu also ranked second in inclusive and sustainable development, reforms in urban local bodies and availability of market information and third in protection of property rights.  However, it came only ninth in the progressive business environment category.

Neighboring Andhra Pradesh, which is ranked first, overall, is way ahead of Tamil Nadu on progressive business environment, according to the Index.

"Tamil Nadu rates highly on market information, urban reforms and property rights. In the report, Economic Freedom of States of India published by Academic Foundation, the state ranked high on legal structure and security as well as regulation of labour and business, due to its good governance," the study said.

Real estate services related to land records and registration and water supply services are perceived as being corrupt in Tamil Nadu, as per the India Corruption Study 2008 by Transparency International India. However, these problems are likely to be alleviated in the long run as all reforms related to computerisation of land records have been initiated and are in progress, the study said.