The Central Board of Direct Taxes (CBDT) has notified the implementation of a 1% Tax Collected at Source (TCS) on specific luxury goods where the transaction value exceeds ₹10 lakh. The 1% TCS move, which the Union Budget 2024 first proposed, officially takes effect from April 22, 2025, following the publication of two detailed notifications issued by the CBDT.
The CBDT has clarified both the types of goods considered ‘luxury’ and the thresholds that trigger the TCS liability. Sellers must collect this tax under Section 206C of the Income Tax Act at the time of sale.
Goods Covered Under the New TCS Rule
According to the CBDT notification, the following luxury items now fall under the scope of 1% TCS:
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Wristwatches of any make
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Art pieces such as antiques, paintings, and sculptures
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Collectibles including rare coins and stamps
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Yachts, rowing boats, canoes, and helicopters
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Designer sunglasses
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Handbags and purses
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High-end shoes
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Sportswear and equipment, including golf kits and ski wear
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Home theatre systems
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Horses used for racing in race clubs or polo matches
These items represent discretionary, high-value purchases usually made by high net worth individuals.
Threshold and Tax Implications
Sellers must collect the 1% TCS only when the transaction value exceeds ₹10 lakh. Importantly, the tax applies to the entire amount, not just the portion above the threshold. For example, if a buyer purchases an art piece worth ₹25 lakh, the seller will collect ₹25,000 as TCS.
Sellers are responsible for depositing the collected TCS against the buyer’s Permanent Account Number (PAN). Buyers can then claim this amount as tax credit when they file their income tax returns, just as salaried individuals claim credit for Tax Deducted at Source (TDS).
Objective and Rationale
The government introduced the 1% TCS rule on luxury goods to improve tax compliance and monitor high-value spending more effectively. In the 2024 Budget memorandum, the government highlighted a noticeable rise in luxury consumption among affluent individuals and cited the need to widen the tax base and enhance financial transparency.
“It has been observed that there is a rise in expenditure on luxury items. To widen and deepen the tax net, and for better tracking of such spending, we have amended Section 206C to include these goods,” the memorandum stated.
Tax experts have supported the move, noting its alignment with international practices. Munjal Almoula, Head of Tax at BDO India, said, “The notification brings much-needed clarity. It reflects India’s strategic pivot towards strengthening its tax intelligence network and tracking discretionary spending—something many advanced economies already do.”
Implementation and Compliance Measures
Sellers need to ensure that the buyer provides a valid PAN and, if required, submit additional Know Your Customer (KYC) documentation before completing the sale.
Once the seller deposits the tax, they must issue a TCS certificate to the buyer. Buyers can then use this certificate while filing their income tax returns to claim credit or request a refund if their actual tax liability is lower than the collected amount.
Broader Tax Framework
This TCS extension builds on existing provisions that already apply to high-value purchases. Previously, TCS applied in cases such as:
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Purchase of motor vehicles exceeding ₹10 lakh
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Foreign remittances and international tour packages
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Sale of goods exceeding ₹50 lakh by certain sellers
By expanding TCS coverage to luxury goods, the government aims to monitor aspirational consumption more closely and strengthen the digital trail of financial activity.
Not Just Revenue Collection
Although the 1% TCS may not generate significant revenue by itself, the government sees it as a tool to improve traceability of big-ticket transactions. By mandating TCS on luxury purchases, the authorities can gather more data on high-net-worth individuals and reconcile it with their reported income.
Tax officials could use the digital trail for targeted audits and investigations where major discrepancies arise between declared income and reported spending.
With the implementation of TCS on luxury goods from April 22, 2025, buyers and sellers in the premium segment must prepare for stricter compliance and documentation. Sellers must collect and deposit the tax correctly, and buyers must retain TCS certificates for use in income tax filings.
The new 1% TCS rule may raise compliance requirements for both buyers and sellers of luxury goods. Vakilsearch offers support with understanding the implications, managing documentation, and ensuring timely tax filings under the updated provisions.
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