Art is now expressly defined as a capital asset in the Income Tax Act even though it may be a personal effect. Under recent Income Tax Rules following property is defined as Art:
• Archaeological collections
• Any artwork
Short Term Capital Gains
Artworks, which are now sold within period of two years, will be taxed, as short-term capital gains, at the regular income tax rates applicable to the individual assessee. The maximum tax rate currently is 33.99%.
Long Term Capital Gains
If the artwork is sold after a period of two years the gain will be taxed as a long term capital gains at a flat rate of 20% excluding surcharge. The highest tax rate applicable is 22.66% including surcharge.
While computing long-term capital gains, assessees can claim the benefits of indexation. The cost of acquisition of the artwork is increased for inflation based on the index values published by income tax department. This has an effect of reducing the amount of tax payable.
The following points also must be addressed:
• In case of the artwork being received as a gift or inheritance, the original cost will be the same as the cost of the previous owner and the period of holding of the previous owner will also taken into account while determining whether it is a short term or a long term asset.
• Where the assessee has acquired an artwork before 1.4.2001 then the assessee has the option to take the fair market value on 1.4.2001 as the cost of acquisition of the artwork.
Following are concerns with the new tax provisions:
• As earlier, in case where there are frequent sales of artworks, the Tax Department can take the position that the individual is an art dealer and is in the business of buying and selling art and therefore the profit is subject to tax as business income and not capital gains. The maximum rate of tax applicable is 33.99%. Astute collectors are also fearful that since frequency of sales is a subjective matter and there is a risk of subjectivity in its interpretation by the tax department and this could lead to litigation. Further, the individual could also get caught in the web of Goods & Service Tax (GST).
• Many art collectors have bought artworks several years ago and they do not have bills and documentation. This could lead to a problem of dispute with the tax department w.r.t. determination of original cost. Also there is a possibility the Tax department could treat these works as undisclosed assets.
• There could be a dispute with tax department about the disclosure of the correct are sale prices of the artworks. Especially with so many auctions showing high prices. Many of the art fraternity feel that auction prices are higher than the actual market prices. Further other factors like quality, period, rarity, etc. influence the price of artwork.
• The definition of art is vague and thus anything under the sun can be defined as art. Since income tax does not precisely define the word 'Art', this could lead to disputes with selling personal effects for high values.
Duties and Taxes
All duties and taxes applicable on the purchase of the artwork shall be borne by the buyer. Duties and Taxes may vary depending upon the location of buyer and the artwork.
Sales in India
Any sale that takes place within India is subject to GST at 12% on the sale value.
Duties and taxes may vary depending upon the shipping address and those countries custom norms which is payable by the receiver. Taxes can range from 0%-12% depending upon the country.