As our exposure to art from around the world grows, the allure of renowned galleries and their captivating collections attracts art enthusiasts worldwide. India, with its vibrant cultural heritage, holds a significant position in the global cultural landscape. For centuries, India has embraced and celebrated art through the mediums of music, paintings, theatre, and dance. As globalisation progresses and the purchasing power of individuals increases, there is a growing trend to collect art and antiques from different corners of the globe. However, importing art acquisitions into India presents certain challenges. Prospective buyers need to be well-versed with regulations on taxation, provenance, shipping, insurance, as well as international guidelines.
One of the crucial aspects of acquiring art is taxation. Once an artwork is purchased, including the costs of value-added tax (VAT) or sales tax, there are further obligations related to export duties. In the United States, sales tax is generally not applicable for the sale of goods for export. However, sales tax ranging from 2.9% to 7.25% would be applicable if the purchaser buys the goods before making an irrevocable commitment to export the artwork. In such exceptional cases, sales tax may be charged, however, there would be no additional export duty levied on the artwork.
In most countries, there is a standard VAT of 20% applicable on the sale of goods and there may be an additional tax on the export of artworks. However, in the UK there is no customs duty levied on the export of artworks, such as paintings, drawings, and pastels, into India. Whereas, in some jurisdictions like France, there is a standard rate of VAT as well as a flat rate of 6% on precious objects or exports of artworks.
In India, artworks such as paintings, sculptures, and antiques are taxed at 12% under the HSN code commodity tariff schedule. Paintings, drawings, original engravings, prints and lithographs, statues and original sculptures in any material, and unique items older than 100 years are taxed at 12% under the single taxation policy. Furthermore, such paintings and artworks are subject to a 10% customs duty per unit, with the exception of artworks created by Indian artists and sculptors and imported into India, which are exempt from customs duty.
Works of art were added to the definition of capital asset in the 2007 amendment to the Income Tax Act. As a result, the sale of an artwork is taxed based on whether it results in short-term capital gains or long-term capital gains, depending on whether it was held for more than or less than 36 months. Additionally, any transfer of the artwork to a Government or university, or museum is exempt from such capital gains. The earnings by renting artworks and reprinting for display are also taxable at slab rates.
Another important aspect of art acquisition is provenance. Provenance essentially means the history of the whereabouts of artwork from the day of its creation till the present day. It generally refers to a ‘chain of title’ including every owner of the piece since its creation and tends to include details about the artwork such as background, notable former owners, and exhibits. Often buyers rely on the provenance of the face value without corroborating the title. Due to such practices, there has been a stark rise in cases of forged provenance, especially the sale of fraudulent and illegally traded art.
The case of the antique dealer Subhash Kapoor stands out in this respect. He stole numerous antiquities from temples, monuments, and historic sites across South Asia and smuggled them to the United States while forging a pre-1970 provenance to pass off the collection as legal. He proceeded to sell the stolen antiques to well-known established art houses and national museums all over the world, earning a fortune in the process. The magnitude of Subhash Kapoor’s fraud - challenged long-held beliefs in the authenticity of ancient art exhibits, facilitating conversations pertaining to reparations and stolen art around the world
The problem of inauthenticity and falsification of documents plagues the art world, witnessed in another instance by Nirav Modi’s seized assets. In recent reports, numerous paintings such as works by F.N. Souza owned by Modi were found to be fake and investigators further questioned whether he was involved in proliferating the art market with fakes he often gifted his international clients. The flooding of art markets with ‘fakes’ is indicative of the need for stricter vetting practices due to the large scale of the investment.
Since purchasing artwork is an investment, it requires multiple authentications as well as additional services such as shipping and insurance. Any investment on this scale would be protected by insurance--and artworks are no different. In the case of cross-border art acquisition, there would be additional compliance with shipping regulations. It is also important to insure the artwork to protect it from any unexpected damage. Certain insurance companies also aid with transportation and storage services which are essential for fragile items.
In the absence of legislation, there are contractual remedies that protect a buyer in case of forged and fraudulent artwork. Due diligence practices and the inclusion of rescission clauses in the sale agreement provide an additional layer of security to a buyer as the buyer has the option to avail of a refund for the return of the art piece.
Despite the concerns addressed above, art acquisition may seem to be a risky and cumbersome process and requires a buyer to be vigilant to ensure the origins of an artwork. Similarly, countries all over the world have been working to protect cultural rights. In light of Subhash Kapoor’s fraud, India has been proactive in bringing back antiquities. On 18 October 2022, the US authorities returned antiquities worth $4 million which were illegally exported from India.
In conclusion, the global art market is a complex and ever-changing landscape, and it is important for a buyer to be aware of these challenges and to know that steps can be taken to mitigate the risks involved. This includes not only conducting due diligence on the artwork but also ensuring that the provenance is legitimate and insuring the artwork.
(Roshnek Dhalla is Counsel at Khaitan & Co. The views expressed are personal.)