TCS On Luxury Goods: What Does This Mean For Buyers And Sellers

Starting this week, high value luxury purchases in India will come along with a new compliance tag - a 1 per cent tax collected at source (TCS). This follows a long-anticipated update by the Central Board of Direct Taxes (CBDT), which issued an official notification on April 23 bringing high-end goods such as luxury watches, yachts, art pieces, even home theatre systems under the TCS net, provided that these item's value crosses Rs 10 lakh.

This new tax rule, which was first proposed in the Union Budget 2024 and was meant to take effect from January 2025, has now been notified and is effective immediately.

The intention, as stated in the Budget memorandum, is clear: the government wants to track high-value discretionary spending by India's affluent and deepen the tax base.

What Does It Mean for Buyers?

The first thought that might come in the minds of buyers would be, "will it mean an additional cost for me?"

According to Aakash Uppal, Partner and Leader, Corporate Tax (North and East), BDO India, the 1 per cent TCS does not technically increase the overall cost for buyers who file income tax returns. "The buyers shall be able to claim the TCS credit at the time of filing of their Income Tax Return," he explained.

However, Uppal added a crucial caveat. "For purchasers who do not file Income Tax Returns, this will act as an additional cost. The credit is available only through filing, so non-filers won't benefit."

What if you buy a second-hand luxury item?

Here is where it gets tricky. The notification does not distinguish between brand-new and pre-owned luxury items.

"The current language of the notification does not distinguish between new and second – hand luxury items. Hence, one view is that 1 per cent TCS may apply even on second-hand luxury items and pre-owned watch or boats," Uppal says.

So, technically, TCS may also apply to the sale of second-hand goods like a pre-owned Omega watch or used yacht.

Planning ahead: What can salaried individuals and HNIs do?

There's a planning angle too. Uppal pointed out that salaried individuals can inform their employers about the TCS while submitting tax declarations. "This can help adjust the TCS against TDS under Section 192(2B), reducing overall tax deducted from salary during the year."

And what about imports?

For those who prefer buying luxury abroad, say in Dubai or Milan, and then importing it to India, the TCS rule won't apply. "Since the TCS levy is on domestic sellers, this tax won't be collected on imports," Uppal clarified.

What are the compliance expectations from sellers?

This new rule places a greater onus on sellers, but only on those who meet a certain income threshold.

Who qualifies as a seller under this rule?

As per the definition of seller, this includes companies, firms, or individuals with a business turnover above Rs 1 crore or professional income above Rs 50 lakh. "Hence, any salaried individual selling any luxury items to another person is outside the preview of this TCS rule," Uppal explains.

What exactly do sellers need to do?

Once the transaction exceeds Rs 10 lakh and involves a specified luxury item, sellers must collect 1 per cent TCS from the buyer.

The amount collected must be deposited with the government by the 7th of the following month. Failure to comply may attract interest.

Further, quarterly TCS returns will need to be filed by the sellers within the prescribed time limit. This step is critical, as Uppal explains, it enables buyers to view the collected TCS in their tax records and claim credit while filing returns.

What is covered?

The list of luxury goods under this rule is wide; it includes the following items:

• Wristwatches

• Art pieces, antiques, sculptures

• Collectibles like coins and stamps

• Yachts, canoes, helicopters

• Luxury handbags, purses, sunglasses

• Designer shoes and sportswear (like golf kits)

• Home theatre systems

• Race and polo horses

If you are spending more than Rs 10 lakh on any of these, TCS is now part of the deal.

Key FAQs to take note of:

Earlier, Section 206C(1F) provided for TCS on sale of motor vehicles of value exceeding Rs 10 lakh. The Income Tax Department has issued the following FAQs for better understanding of taxpayers:

1) Whether TCS will be levied on sale of a single item of the notified goods of value exceeding Rs 10 lakh?

Yes, TCS will be levied on sale of a single item of the goods of the nature specified in the above table which is of the value exceeding ten lakh rupees.

2) When will the new provisions become effective?

The new provisions will become effective from the date of publication of notification i.e. 22.04.2025 (April 22, 2025).

The change is part of the government's effort to tighten tax reporting on luxury and high-end discretionary spending. This also tax authorities attempt at ensuring better visibility of large transactions and bring more people into the formal tax net.

For buyers, the advice is pretty simple, keep records, file your return, and don't overlook the credit. On the part of sellers, it is a matter of updating billing and tax systems to comply, or risk penalties.