Taxation angle to selling and buying of art

Any income earned by an individual while owning a work of art (painting, drawing, sculpture) such as rent for letting it for display purpose in an exhibition area, or a fee for reprinting the same in a publication, would be taxed as normal income. This would be classified under the income head ‘from other sources’.

Would the artwork be subjected to wealth tax? The definition of asset under the Wealth Tax Act, until now, doesn’t include such works of art, and, therefore, are not subject to any wealth tax for now. However, DTC provisions to come into effect from April 2012 propose to extend the wealth tax levy to all art assets.

How they are to be valued? This would be a matter of debate as valuation of art can be subjective. Luckily, the prevailing wealth tax limit is extensive enough at Rs1 crore. Art would continue to be subjected to capital gains tax under the new DTC regime as all types of property, barring stock-in-trade, are going to be termed capital assets. Investment expert Gautam Nayak, states in a column (‘Beyond The Tax Book’; The Mint):

"The DTC proposes to modify the long-term capital gains tax rate to normal tax slab rates. However, the benefit of cost indexation would be available if the asset has been held for at least one year from the end of the year in which the asset in question is acquired (instead of the existing three years).”

If you receive a gift in any form of art whose aggregate value is more than Rs50,000 in a year, it will be subjected to income-tax. If you buy such works at concessional prices and the concession value is more than Rs50,000 during a year, the value of the concession you obtained will also be subject to taxation as a deemed gift.

But what does constitute a concession (more so because the market value happens to be subjective) is debatable. If the work has been recently acquired from a dealer, the sale price can be considered as the market value. In essence, from taxation angle, selling and buying of art has many finer provisions that you need to get sorted out with help of financial experts.