The Indian government has made a significant shift in its tax policy with the imposition of a 1% Tax Collected at Source on the purchase of certain high-end products valued at over Rs 10 lakh. The new rule, effective from April 22, 2025, would make tax collection stricter and bring high-value transactions under closer surveillance.
Understanding TCS for Luxury Goods
TCS is a system in which the seller collects a specified percentage of tax from the buyer at sale and remits it to the government. The primary objective is to track high-value transactions and ensure proper reporting for taxation.
With the recent addition to Section 206C(1F) of the Income Tax Act, TCS has been extended beyond motor vehicles to other luxury goods. Sellers now have to levy 1% TCS on the sale of some luxury goods worth over Rs 10 lakh.
List of Specified Luxury Goods
The CBDT has notified a list of high-value items to be included under this new provision on TCS. They are:
- Wristwatches
- Art pieces, such as paintings, sculptures, and antiques
- Collectibles, such as coins and stamps
- Yachts, canoes, helicopters, rowing boats
- Sunglasses
- Handbags and purses
- Footwear
- Sports equipment and gear, such as ski wear and golf sets
- Home theatre systems
- Horses that are used in horse racing or polo
If the value of any of these items is greater than Rs 10 lakh, the seller has to collect 1% TCS from the buyer.
Implications for Buyers and Sellers
For Buyers:
- Purchase of Luxury Items: Anything over ₹10 lakh in the form of luxury items will have an additional 1% TCS, that too added on to the expense.
- Income Tax Return Filing: The buyers can claim this TCS when they file for income tax return, which then can reduce their tax liability.
For Sellers:
- Compliance Requirements: The sellers are needed to get registered for TCS, collect the tax while making the sale, and deposit it to the government within the deadlines.
- Record Maintenance: Sellers must maintain accurate records of transactions and TCS collected to comply with the provisions and avoid penalties.
Procedural Aspects and Compliance
To introduce the new TCS provisions for luxury goods, the CBDT has amended the Income-tax Rules, 1962. These changes were made through the Income-tax (Eleventh Amendment) Rules, 2025. Form No. 27EQ, used by sellers to file quarterly TCS returns, has also been updated. New reporting codes for luxury goods under Section 206C(1F) have been added.
Implementing TCS for luxury Goods is a deliberate government move to:
- Enhance Tax Visibility: By tracking high-value spending, the government believes that it can curtail tax evasion and bring more individuals into the tax net.
- Adhere to Best Practices: Most nations have such measures in place to track high-end spending, and this step puts India on par with best global practices.
- Widen the Tax Base: With the levy of luxury goods, the government will be in a position to increase its revenue and ensure that high-net-worth individuals pay their rightful share.
Conclusion:
A 1% TCS on luxury goods priced above Rs 10 lakh marks a major shift in India’s tax policy. This move aims to increase transparency and compliance in high-value transactions. Buyers and sellers must be careful to follow the new rules. Buyers should keep records of the TCS paid to claim it while filing their income tax returns. Sellers must collect and deposit TCS on time to avoid penalties.
FAQs
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What is TCS, and how will it be applicable on luxury goods?
The seller collects TCS from the buyer at the time of sale. For specific luxury goods valued over Rs 10 lakh, the seller must recover 1% TCS from the buyer and deposit it with the government.
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Which luxury goods are not covered under the 1% TCS?
The above-listed luxury products are wristwatches, paintings, collectibles, yachts, sun glasses, handbags, shoes, sporting equipment, home theatre systems, and racehorses or polo horses, provided their value exceeds Rs 10 lakh.
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How are the buyers availing credit on the TCS paid?
The seller collects TCS and it appears in the buyer’s Form 26AS. Buyers can claim credit for this amount against their total tax payable when filing income tax returns. If the TCS paid is more than their tax liability, they can claim a refund for the excess amount.
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Do sellers have to provide any documentation to buyers?
Yes, sellers must provide a TCS certificate to the buyer. This certificate serves as proof of tax withheld and helps the buyer while filing their income tax return.
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What are sellers penalties for non-compliance?
Non-deduction or non-collection of TCS is subject to penalties, including interest on the defaulted amount and even prosecution under the Income Tax Act. Sellers must comply in time to avoid such actions.
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