Tax Collected at Source: These luxury goods above Rs 10 Lakh to attract 1% TCS starting April 2025

Starting April 22, 2025, luxury goods priced above Rs 10 lakh will be subject to a 1% Tax Collected at Source (TCS). This development follows the Finance Act, 2024, with the Central Board of Direct Taxes (CBDT) issuing notifications to clarify the implementation. Items such as wristwatches, handbags, yachts, and high-end sports equipment fall under this new tax regulation.

The tax is applicable under Section 206C of the Income Tax Act and places the responsibility of collection on sellers, who must deposit the TCS against the buyer's Permanent Account Number (PAN). Buyers can then claim this amount as a tax credit in their Income Tax Return (ITR) filings. 

The introduction of TCS on luxury goods aims to strengthen the audit trail and increase oversight on high-value discretionary spending. This measure is part of a broader policy to expand India's tax base and enhance financial transparency. According to the CBDT's notifications, sellers must ensure timely compliance with the provisions, while buyers may face increased Know Your Customer (KYC) requirements and documentation at the point of purchase. This compliance includes collecting a TCS certificate from sellers once the tax is deposited against the buyer's PAN. 

Among the luxury items affected are not only everyday high-value items like art objects, including paintings and sculptures, but also unique collectibles such as coins and stamps. Additionally, transportation items like yachts and helicopters, as well as lifestyle goods including luxury handbags, sunglasses, and high-end sportswear, are covered under this tax rule. The TCS is set at 1% of the sale price, indicating that a Rs 30 lakh purchase would require a Rs 30,000 tax collection at the source. This mirrors existing rules for motor vehicles exceeding Rs 10 lakh. 

The following luxury goods are subject to the collection of Tax Collected at Source (TCS) by the seller:

Wrist watches
Art pieces, including antiques, paintings, and sculptures
Collectibles such as coins and stamps
Yachts, rowing boats, canoes, and helicopters
Sunglasses
Bags, including handbags and purses
Shoes
Sportswear and equipment, such as golf kits and ski wear
Home theatre systems
Horses for horse racing in race clubs and polo.

Tax experts, including Sandeep Jhunjhunwala of Nangia Andersen LLP, view this move as critical in operationalising the government's intent to monitor discretionary expenditure further and bolster the audit trail for luxury goods. Jhunjhunwala highlights that sellers must "ensure timely compliance with TCS provisions, while buyers... may experience enhanced KYC requirements and documentation at the time of purchase." Although the luxury goods sector might face transitional challenges, these changes are "expected to promote formalisation and improved regulatory oversight over time." 

Munjal Almoula, Head of Tax, BDO India: "The much-anticipated notification on TCS on luxury goods brings clarity on scope and thresholds. Effective April 22, 2025, the levy applies to notified products exceeding Rs 10 lakh in value with tax applicable on the full transaction amount in excess of Rs 10 lakhs. This move is a strategic step towards enhancing tax transparency and tracking high-value consumption trends, a move that aligns with global trends in tax surveillance and tax transparency."

The TCS mechanism allows buyers to offset the tax collected by filing it during their ITR submission, similar to how TDS (Tax Deducted at Source) works for salaries. Should the TCS amount exceed the buyer's net tax liability, they can claim a refund. This initiative, reflecting a strategic policy direction, anticipates fostering a more transparent and accountable luxury goods market, aligning with similar tax implementations on high-value items like motor vehicles. 

(With agency inputs)