Tax Art Investments

The taxman has suddenly found a new interest — art, or more precisely, the art collector. Having adorned the living rooms of the well-heeled without fear of a cut from the government, works of art will now attract a tax when they are sold as the income received will be treated as a capital gain.

This year’s Budget says sale of art will be taxed at the marginal rate — the income tax rate applicable to the seller — for a period of three years, and at 20 per cent for longer. The Budget does not list all the items that make “art” but mentions drawings, paintings and sculpture.

Until now, art came under person effects and was therefore officially tax-free. But in practice, this was not the case, says Amit Vadehra, of Crayon Capital.

“Typically, a sale worth Rs 10 lakh or more was treated under the trader category and was taxed as income from other sources,” he said. “Some people paid the tax and some didn’t as there was no legal provision. It’s good the rules have been defined.”

Art belonged to the private world of the rich in which its price was secondary to its aesthetic value. But that was till three-four years back. In recent years, trading in paintings and other art stuff has become a lucrative business, making them an investment that collectors hope makes a fast buck.

This, together with huge demand and limited supply, has rapidly raised the price of art, giving the government strong reason to include its sale in the list of taxable income.

“Most art investors could not claim the work to be their personal effect. Even if someone had a genuine personal effect, it was very unlikely that the I-T Department would accept it, especially if the amount it fetched was huge,” says Neville Tuli, of Osian’s Art Gallery.

He is happy that art sale is now under the purview of capital gains and the confusion has been done away with. “The new transparency will help build a systematic industry for cultural artifacts,” Tuli said.

Crayon Capital’s Vadhera says this would also mean reduction in speculative selling, which has been rampant in the industry. “Since capital gains encourages long-term holding, speculative and short-term trading would be discouraged, and the market will become more stable.”