From Handbags to Yachts to Attract 1% TCS: Categories, Threshold, Rules and Impact Explained
If you’re planning to buy a yacht worth Rs. 30 lakhs, then you’ll have to pay Rs. 30,000 as TCS, which is its 1%. It is important to note that the threshold applies per transaction not on an annual basis
The central government has introduced a 1% Tax Collected at Source ( TCS ) on luxury goods priced above ₹10 lakh, effective from April 22, 2025. The government has issued notification with regards to the TCS imposition and the changes in Form 27EQ. This clearly affects the high income nationals who buy luxury items and have no impact on the people who don’t buy luxuries. What is...
The central government has introduced a 1% Tax Collected at Source ( TCS ) on luxury goods priced above ₹10 lakh, effective from April 22, 2025. The government has issued notification with regards to the TCS imposition and the changes in Form 27EQ. This clearly affects the high income nationals who buy luxury items and have no impact on the people who don’t buy luxuries.
What is TCS ?
TCS (Tax Collected at Source) is where sellers collect tax from buyers at the point of sale and remit it to the government. Unlike TDS (Tax Deducted at Source), which is deducted by payers during payments, TCS applies specifically to transactions involving designated goods or services. For example, as per the new rule, a seller of luxury watches would add 1% TCS to the invoice if the sale exceeds ₹10 lakh.
Also read: CBDT Revises Form 27EQ: TCS Applicable on Luxury Items including Sale of Yacht, Home Theater
Scope of the New 1% TCS Rule
The new income tax TCS rule applies to the list of goods, which is primary luxury goods, which exceeds the value of Rs. 10 lakhs. The seller is bound to collect the TCS on such products. It is introduced under Section 206C(1F) of the Income Tax Act.
Get a Handbook on TDS Including TCS as Amended up to Finance Act 2024, Click Here
Categories of Luxury Goods
As per the new notification has listed certain goods which TCS applies if the value exceeds Rs. 10 lakhs. The new list is as follows:
- Any wrist watch
- any art piece such as antiques, painting, sculpture
- any collectibles such as coin, stamp
- any yacht, rowing boats, canoes, helicopters
- any pair of sunglasses
- any bag such as handbag, purse
- any pair of shoes
- any sportswear and equipment such as golf kit, ski-wear
- any home theatre system
- any horse for horse racing in race clubs and horse for polo.
Thus, these items can be broadly categorized into Personal Accessories, Art and Collectibles, Recreational Goods, and Sporting Goods. The use of the word “any” in the notification indicates that the rule applies uniformly, irrespective of brand, make, or type.
For instance, within the category of wristwatches, smartwatches are not treated separately. The government has opted for a broad and inclusive phrasing “any wrist watches” to ensure there is no ambiguity or exception based on product subtypes.
Threshold Limit: When Does the 1% TCS Apply?
As stated earlier, the 1% TCS applies only to the goods whose value exceeds Rs. 10 lakhs. The 1% levy applies if the total sale consideration for a single item exceeds ₹10 lakh. For example if you’re planning to buy a yacht worth Rs. 30 lakhs, then you’ll have to pay Rs. 30,000 as TCS, which is its 1%. It is important to note that the threshold applies per transaction not on an annual basis.
Get a Handbook on TDS Including TCS as Amended up to Finance Act 2024, Click Here
Who Collects the TCS?
The whole responsibility to collect the TCS lies with the seller at the time of receiving payment as mandated under Section 206C of the Income tax act. The seller has to issue the certificate to the buyer and also remit the amount to the government before the due date.
Impact on Buyers
The implementation of a 1% TCS on luxury goods priced above ₹10 lakh has direct and indirect consequences for buyers, especially high-net-worth individuals, foreign nationals, and collectors of high-value items. This decision of the government will force the buyers to rethink buying luxury items.
For buyers, the most immediate impact is the increase in the total purchase cost. Since the TCS is collected over and above the sale price, it effectively raises the final bill amount by 1%. For instance:
- If a buyer purchases a designer handbag priced at ₹11,00,000, the seller is required to collect an additional ₹11,000 as TCS. The final bill becomes ₹11,11,000 (excluding applicable GST).
Also read: No New Grounds Allowed at Appeal Stage Without Prior Notice: Allahabad HC Restores GST Registration
Even though TCS is not a tax levied on goods, it could have an indirect effect on shopping choices, particularly in the scenarios of one huge one-time shopping or numerous huge-value transactions.
TCS is not a separate tax imposition, but instead a tax advance collected on the buyer's behalf, which gets adjusted in the process of income tax filing. It can be credited when the buyer files income tax return and hence reduces his overall tax outgo.
The collected amount as TCS is shown in Form 26AS, which is associated with the PAN of the buyer, for transparency and traceability of high-value transactions. Depending on the total tax payable by the buyer, the TCS amount may either lower the net tax payable or even lead to a refund, in case of excess tax paid. Essentially, although TCS does not add to the buyer's overall tax burden, it can have a short-term impact on cash flow, since it is a payment in advance at the time of purchase.
Get a Handbook on TDS Including TCS as Amended up to Finance Act 2024, Click Here
Further, most consumers who are not privy to how TCS is calculated while filing income tax may find the idea confusing and daunting. Suchuncertainty can have a bearing on their buying behavior, particularly when buying expensive luxury products. Certain customers might get discouraged from such buying, believing on false grounds that the 1% TCS is an added, non-recoverable price over and above the already prohibitive GST. This perceived cost burden could cause them to delay or even forego purchasing luxury items altogether.
Impact on Businesses
The Tax Collected at Source on high-end goods raises the compliance burden for high-end retailers and dealers. Companies selling high-value products like watches, handbags, yachts and art have to ensure strict compliance with the new tax collection and reporting standards.
This includes modifying their billing systems to accommodate TCS information, educating employees on the procedure for addressing tax-related questions by customers, and updating invoicing and accounting software to effectively integrate the tax element into their transaction streams. It adds more procedural complexities for companies that deal with high-end clients, forcing them to restructure their operational and financial systems in order to remain compliant.
Also read: Section 80JJAA: Know All About Employment Generation Deduction
TCS vs GST on Luxury Goods: What's the Difference?
TCS is governed under Income Tax Act and GST is under Goods and Services tax act. The GST is applicable universally and the TCS has a threshold limit. However, the luxury buyers who buy a product exceeding Rs. 10 lakh have to pay both TCS and the GST.
Example: How TCS and GST Work Together on Luxury Purchases
Get a Handbook on TDS Including TCS as Amended up to Finance Act 2024, Click Here
Let’s consider the purchase of a luxury handbag priced at ₹15 lakh. Luxury goods like high-end handbags attract 18% GST, and now, with the new provision, 1% TCS is also applicable on purchases exceeding ₹10 lakh.
Breakdown of the Total Cost:
- Base Price of the Bag: ₹15,00,000
- GST @ 18%: ₹2,70,000
- TCS @ 1%: ₹15,000
Here, the buyer pays ₹2,70,000 as GST, which goes towards indirect tax revenue, and ₹15,000 as TCS, which is a pre-paid income tax component and can be claimed as credit while filing the income tax return. The total amount to be paid by the buyer for buying such a luxury bag is Rs. 17,85,000/-. The TCS does not increase the buyer’s overall tax liability but does impact upfront cash outflow at the time of purchase.
Also read: VAT Liability Not Disallowable u/s 43B If Not Claimed As Deduction In Profit & Loss Account: ITAT
Imported Luxury Goods: Is TCS Applicable at Customs?
When a person imports a designer bag from overseas and imports it toIndia, they must pay relevant import taxes like 15% custom duty, 10% social welfare surcharge, and 18% IGST on the taxable value of the item. Yet, till date, there is no clarification available as to whether the new 1% TCS on high-value luxury goods above ₹10 lakh is being charged on such imported goods at the time of importation.
Rule Implementation and Effective Date
The new rule mandating a 1% Tax Collected at Source (TCS) on luxury goods priced above ₹10 lakh will come into effect from April 22, 2025, as per the official government notification issued on the same date.
Initially, the government had proposed January 1, 2025, as the rollout date. However, this was later revised to April 22, 2025, in order to prevent any confusion or unintended retrospective application of the provision.
Businesses dealing in luxury items such as high-end watches, bags, art, and sports wear must now immediately update their billing systems, tax compliance mechanisms, and documentation processes to incorporate this new levy. Similarly, buyers will notice a change in their final billing amount and must factor in the upfront tax collection during purchase.
Get a Handbook on TDS Including TCS as Amended up to Finance Act 2024, Click Here
FAQ issued by CBDT
Q.1 What changes were brought in section 206C(1F) of the Income Tax Act, 1961 through Finance (No. 2) Act, 2024?
Ans. Earlier, Section 206C(1F) provided for collection of tax at source (TCS) on sale of motor vehicle of value exceeding ten lakh rupees. Vide Finance (No. 2) Act, 2024, section 206C(1F) was amended to provide that TCS will also be levied on any other goods of value exceeding ten lakh rupees, as may be notified by the Central Government in the Official gazette.
Q.2 Which are the luxury goods of value exceeding ten lakh rupees on which TCS will be levied?
Ans. Vide CBDT Notification No. 36/2025 dated 22.4.2025 SO 1825(E), the following goods of the value exceeding ten lakh rupees have been notified for collection of tax at source as specified in sub-section (1F) of section 206C of the Act –
Q.3 Whether TCS will be levied on sale of a single item of the notified goods of value exceeding ten lakh rupees ?
Ans. 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.
Q.4 When will the new provisions become effective?
Ans. The new provisions will become effective from the date of publication of notification i.e. 22.04.2025.
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