Indian Law: Tax Exemption for Fashion Designers

On June 14, 2010, the Bombay High Court ruled that fashion designers are artists and hence eligible for income tax exemption, which came as a relief for many struggling designers in the Indian fashion industry. Indian law pertaining to tax exemption was not so liberal earlier. Ten years ago, when the ace Indian designer Tarun Tahiliani petitioned for I-T exemption under the category of artists, the income tax department rejected his claim as it did not recognize a fashion designer as an artist. A division bench headed by Justice J P Devadhar and Justice Dhananjay Chandrachud proclaimed that fashion designers should get tax privileges available the category of artists.

Indian Law: Fashion Designer Tarun Tahiliani’s Struggle for Income Tax Exemption

For the financial year 1999-2000, fashion designer Tarun Tahiliani earned Rs.83.90 lakh for which he sought exemption based on Indian laws for tax exemption. Tahiliani is well-known not only for opening the first fashion boutique in the country but also for bringing high couture to India. He declared that Rs.53.24 lakh should be his taxable income after applying the exemptions. His plea was, however, rejected by the I-T department. Moreover, deductions that he sought on his taxable income for 1999-2000 and 2001-2002 were contested.

Interestingly, the income tax appellate tribunal gave a verdict in the favor of the designer. The Income Tax department then moved to the High Court, challenging the order of the tribunal, considering it against the Indian Income Tax Laws.

According to the Department’s advocate, fashion designing falls under the category of applied art where exemptions don’t apply. Exemptions are only applicable to fine arts category. The department also said that only those artists are eligible for income tax exemption who represent Indian culture overseas. The High Court, however, declined the petition filed by the Income Tax department and entitled fashion designers to tax exemptions.