The Budget proposal to impose capital gains tax on transactions in works of art would qualify art as another asset class. The move would also give rise to a new breed of investors, as they gain greater confidence in putting their hard-earned money into the asset class, said experts.
The art world would also brighten up, as the ticket size or the minimum amount required to invest in an art fund would go down, helping middle-income investors to participate in the new instrument.
Art has come into the public domain because of the turnover at auctions. The tax treatment, as proposed in the Budget, will make investors look at works of art as an asset class, said V Sanjay Kumar, trustee of Yatra Fund, which manages two art funds in the country.
Art funds collect money from high-networth individuals (HNIs or the super rich) to invest in works of art with an objective of giving big returns to the investors riding piggyback on the surge in art prices.Until now, the world of art was occupied by art collectors, but now a new breed of people is also coming in. Till now, people were worried on whether art was a safe asset. But the imposition of the tax means there is gain in it and that it is an asset class. The move will boost art investments, added Ajay Sheth, chief mentor of Copal Art, an collector and autioneer of rare Indian contemporary art.
He said the efforts were directed towards transparency. Investors confidence will go up and liquidity will increase. With the imposition of the tax, art collectors will not turn out to be sellers and they will wait as the recognition is going up.
Capital gains tax is 30 per cent for short term (less than 3 years) and 20 per cent for long term. Experts feel the proposal may be a precursor to the appointment of a regulator for art investments.
We expect a regulator to step in to make art transactions more transparent. The ticket size, which is normally at Rs 10 lakh or above, is also likely to come down considerably, helping more retail investors to invest in works of art indirectly through art funds, said Anurag Mehrotra, head of wealth management at Edelweiss Securities. Earlier, there was no clarity and confusion prevailed, as art investments were in the personal domain. But now, the industry has grown in size. said Kumar of Yatra Fund.
Sandeep Shanbag, a tax consultant, said the move to impose tax was primarily aimed at checking unaccounted money. Capital gains tax is unlikely to have a significant impact on art collectors. This move by the finance minister is aimed at tracing the huge amount of unaccounted money that flows into the purchase of works of arts under the Money-Laundering Act.