Collectors eager to cash in on the rising value of their collections must contend the dilemma first of whether they will attract the taxman's axe -- the law stands ambiguous about which collectibles can be taxed on sale.

According to the Income Tax Act, archaeological collections, drawings, paintings, sculptures and any other work of art are considered capital assets'.

So, gains made from selling these items are subject to either short- or long- term capital gains tax.

If held for less than three years, these attract a short-term capital gains tax, and a long-term capital gains tax if held for more than three years.

STCG is added to one's overall income and taxed according to the slab.

LTCG is taxed at 10 per cent without indexation, or 20 per cent with indexation benefits. "The term 'work of art' is open-ended.

"It can be used to bring in a lot of items under the tax net and make it difficult to argue otherwise," feels Kuldip Kumar, executive director-tax and regulatory services, PwC.

"On the other hand, collectibles such as coins that have proved to be profitable investments for collectors do not attract any tax under the law.

In 1972, the Reserve Bank of India released a limited edition set of Rs 10 and 50 paise coins to mark the silver jubilee of India's independence.

These were distributed among select dignitaries as mementoes.

At the annual exhibition of coins and notes held in Ahmedabad last month, the owner of one such set made a windfall gain of Rs 325,000 from its sale.

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"Items such as notes, coins, stamps, furniture, and even wines, are considered as 'personal effect items' by the law.

"Legally, these are kept out of the ambit of any tax incidence, says Homi Mistry, tax partner, Deloitte, Haskins & Sells.

However, if coins contain components of precious metals, these would be treated as physical gold or silver. Any gain earned from its sale would be subject to capital gains tax.

But such large transactions, especially those in the public limelight, can come under the tax scanner.

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"Since such items do not attract capital gains tax, these can be included under income from other sources' " according to Kavita Kanade, tax partner, Mukund M Chitale & Co chartered accountants.

The taxman will consider the entire transaction amount as profit unless one can provide documentary proof stating the purchase date and price. In such cases, only the profits get added to the income and taxed according to the slab.

Suppose one inherits the items, he/she should be mentioned as the legal heir in the will of the one bequeathing the inheritance.

This will be especially helpful when one makes any high-value sale.

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At present, none of these items art or otherwise is subject to wealth tax.

This may change with the introduction of the Direct Taxes Code, which plans to include archaeological collections, drawings, paintings, sculptures and other 'works of art' as a part of an individual's wealth.

The cumulative value of one's wealth, including other items such as land, building and jewellery, in excess of the threshold limit of Rs 1 crore (Rs 10 million) will be taxed at one per cent, then.

However, guidelines for valuing these collectibles are unclear and can, therefore, pose a problem under the DTC regime, too.