Commercial Property in Wealth Tax Act

Wealth Tax is chargeable for every assessment year in respect of net wealth on the corresponding valuation date of every Individual; HUF and Company @ 1% (EC & SHEC is not chargeable) of the amount by which the net wealth exceeds Rs. 30 lacs. 

To make the above definition more clear –

Wealth tax is tax on wealth and this is applicable to following persons:

  • Individual
  • Hindu Undivided Family
  • Company

Where, valuation date refers to 31st March immediately preceding the assessment year.  Value of asset as on last moment of valuation date is considered and thus if an asset is transferred on the valuation date itself, it shall not be included in the net wealth of transferor.

Wealth Tax is chargeable on the exclusive list of assets [Section 2(ea)] as mentioned below –

  1. House [Section 2(ea)(i)]
  2. Motor Car [Section 2(ea)(ii)]
  3. Jewellery, Bullion, etc [Section 2(ea)(iii)]
  4. Yachts, Boats and Aircraft [Section 2(ea)(iv)]
  5. Urban Land [Section 2(ea)(v)]
  6. Cash in hand[Section 2(ea)(vi)]

In this article, let us discuss the chargeability of wealth tax on House first.

House includes –

a)      Any building or land appurtenant thereto whether used for residential or commercial purposes or for the purpose of maintaining guest house

b)      Farm-house situated within 25 Kms from local limits of any municipality or a cantonment board

However, house does not include the –

a)      Residential House allotted by company to its employees – A house meant exclusively for residential purpose and which is allotted by a company to its employees or officer or whole time director, having a gross salary of less than Rs. 10 lacs.

b)      Stock in Trade – Any house whether for residential or commercial purpose which forms part of stock in trade.

For instance: A building constructed by the builder and given on rent pending sale thereof, is stock in trade of the builder and hence cannot be treated as an asset.

c)       House used for own business  or profession –Any house, used which the assessee may occupy for the purpose of business or profession carried on by him

d)      Let out residential house – Any house property that has been let out for a minimum period of 300 days in the previous financial year

e)      Commercial Establishments – Any property in nature of commercial establishments or complexes. The benefit cannot be denied only on the ground that the assessee had more than one commercial establishments or complexes at different places. The said exemption would be available to all such properties held by the assessee and cannot be restricted to one only.

To elaborate more on commercial establishment –

The term “Commercial Establishment or Complexes” is a novel term. Commercial Property covers property used for any business or commercial purpose and therefore shops, multiplexes, other office premises would be eligible for exemption.  But exemption is available only if such property is used for some business purpose by assessee or by other person. Property which is totally unused /vacant and is also not ready for use does not fall within the ambit of commercial property. This would remain taxable.

“Commercial Establishment” would mean a place where commodities are exchanged or sold or a profit-making establishment (i.e, an establishment carrying on a business or profession). The amendment excludes any property in nature of Commercial Establishment. Now, when a place is given for use to a Trader, certainly, the place is used for a Commercial Establishment, i.e., to carry on any Trade or Business. Thus, the place is merely let out for carrying on any activity of a Commercial Establishment.

There may be cases, where a person owns a place in which he runs a Business Service Center. As a variant thereof, a person owning a place for commercial use may divide it into various Units and let them out to different persons with certain facility. In that case, the person owning could be considered as using a place as Commercial Establishment to carry on activity for profit.

Thus, it is required that the person should know the difference between commercial and residential property for the purpose of chargeability of the property, as the residential property is chargeable to wealth tax while commercial property is excluded from the ambit of wealth tax chargeability.


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