1% TCS Levied on Luxury Goods

The Income Tax Department has come up with a new rule related to Tax Collected at Source (TCS). The rule is that now, 1% of TCS would be effective on luxury goods priced at Rs. 10 lakh or above. The step taken is expected to help the tax man widen the tax base by tracking luxury spends rather than an immediate tool to collect revenue.

This new rule notified by the Central Board of Direct Taxes comes into effect from April 22, 2025. It will bring many specified goods over Rs. 10 lakh into the ambit of 1% TCS. The specified goods include Wrist Watches, Handbags, Sunglasses, Shoes and Sportswear, Art Objects (Paintings, Sculptures, Yachts, Home Theatre Systems) and also Horses intended for racing or polo.

Sandeep Jhunjhunwala, Tax Partner at Nangia Andersen LLP pointed out that the notification operationalises the intent of the government to enhance monitoring of high-value discretionary expenditure and strengthen the audit trail in the luxury goods segment.

He further said, “It reflects a broader policy objective of expanding the tax base and promoting greater financial transparency. Sellers will now be required to ensure timely compliance with TCS provisions, while buyers of notified luxury goods may experience enhanced KYC requirements and documentation at the time of purchase.”

Although the luxury goods sector may undergo some transitional challenges, this measure is anticipated to enhance formalisation and improve regulatory oversight over time.

Amit Maheshwari, Tax Partner, AKM Global, said that the notification expands the scope of TCS to include luxury goods and collectables and will enhance the traceability of luxury spending. He also said, “By bringing high-value items like wristwatches, art pieces, antiques, yachts, and collectables (above Rs 10 lakh) into the TCS framework with a 1% rate, the government is widening the tax net beyond just motor vehicles.”

HNIs and Luxury Spending on the Rise

In recent years, high net individuals in India as well as high end luxury shopping in the country have been witnessing a new rapid rise.

Even the individuals reporting income of Rs 1 crore and above in their ITR have been on the rise. In FY25, over 313,000 individuals filed their returns, and they reported their income above Rs 1 crore. If we look at the official data, over 2,97,000 individuals filed income tax returns of Rs 1 crore to Rs 5 crore by March 31, 2025. Apart from that, around 16,797 individuals filed returns for income falling between Rs 5 crore to Rs 10 crore. If we compare this current scenario with a decade ago, in FY15 just 51,102 individuals reported income of Rs 1 crore and more.

In the same phase, luxury spending in India has also been on the rise with not just the high net-worth individuals but also upper middle-income groups splurging on luxury goods, mainly handbags, watches, shoes, sunglasses, etc.

According to a recent report by Bain & Co., India’s luxury market is set to reach $85 billion by 2030, with the personal luxury goods segment at $4 billion.

Tax Measures

Previously, the Union Budget 2024-25 had brought an amendment under which motor vehicles sellers with vehicles & goods priced at Rs 10 lakh or more any other goods marked by the government, would be expected to collect 1% of TCS from the buyer.

The IT Department also keeps a tab on several high value transactions by individuals like purchase of property, jewellery and credit card spending. In fact, the department is also taking help from Artificial Intelligence and Data Analytics to keep a closer look on spending done by individuals.

Moreover, the Statement of Financial Transactions (SFT) that financial institutions, banks, and mutual funds provide to the income tax department gives details of high-value transactions, dividend payments, interest payments, and transactions in listed securities and units of taxpayers’ mutual funds.