Luxury Now Comes With Tax! All You Need to Know About 1% TCS on Luxury Goods

Luxury Now Comes With Tax! All You Need to Know About 1% TCS on Luxury Goods

Until now, luxury goods were not covered under Tax Collected at Source (TCS). However, with the amendment introduced in Budget 2024, TCS will now be applicable on certain luxury items priced above ₹10 lakh. On 22nd April 2025, the government officially notified vide Notification  No. 36/2025-Income Tax the list of these specified goods — and what’s more surprising is not what’s included, but what’s been left out. This time, it seems the government has taken a more thoughtful and deliberate approach in deciding what truly qualifies as a luxury item.

Let’s now try to understand the intention behind this move.

What’s the Objective Behind This Move?

Post-COVID, the government has observed a significant surge in the public’s spending on luxury goods. If we look at the data, India’s luxury goods market has grown substantially, with high-value purchases — especially those over ₹10 lakh — becoming more frequent across various segments.

To understand this in more detail, let’s look at the data:

• Market Size: As of 2023, India’s luxury goods market stands at around $17 billion, and is expected to grow to $90 billion by 2030.
• Personal Luxury Goods: Items like watches, leather products, high-end fashion, and beauty goods contribute approximately $4 billion to this market.

Clearly, this is a booming sector — and expanding fast.

Given this backdrop, the government amended the law to bring certain luxury goods under the TCS net. The stated objective in the Budget memorandum was to track high-value spending, widen the tax base, and ensure better compliance by collecting data on such transactions.

But as always, there’s more to it. This move also serves a broader goal: matching expenditure with declared income.

By imposing TCS on luxury goods, the government gets visibility into this fat purchases made by individuals. These transactions will now appear in the buyer’s Annual Information Statement (AIS) — alongside foreign travel, mutual fund investments, and other high-value spends.

If there’s a mismatch between what you spend and the income you declare in your ITR, don’t be surprised if you get a notice asking:

• What is the source of these funds?
• Have you declared this income in your return?

The introduction of 1% TCS on luxury goods — effective April 22, 2025 — is, therefore, both a compliance measure and a tool for advance cash collection.

In this regard, the CBDT has issued two notifications and an FAQ circular, laying out the details of this new provision.

And while this 1% may seem small, several websites have reported that the government expected to collect ₹200 crore annually through this mechanism — not as direct tax revenue, but as advance tax flow and a compliance check.

Which Luxury Items Are Covered?

The government has notified a list of items on which 1% TCS will now be applicable if the sale value exceeds ₹10 lakh. These include:

1. Wristwatches

2. Artworks– such as antiques, paintings, sculptures

3. Collectibles– like rare coins and stamps

4. Luxury transport– yachts, rowing boats, canoes, helicopters

5. Sunglasses

6. Luxury bags– including handbags and purses

7. High-end footwear

8. Sportswear and equipment– such as golf kits and ski gear

9. Home theatre systems

10. Horses– for racing in clubs or for polo

Looking at this list, it’s quite clear that these items are not essentials — they fall well within the category of luxury consumption.

Now, some might wonder — what about cars? Isn’t a car often the first “big purchase” people aspire to once their basic needs are met? Well, the answer lies in an existing provision. The Income Tax Act already mandates TCS on motor vehicles priced above ₹10 lakh — so that’s already covered.

Then comes another obvious question — what about jewellery? Isn’t that also a luxury?

As of 2023, India accounted for approximately 24.21% of the global jewellery market, highlighting its deep-rooted significance in the Indian economy. The bridal jewellery segment alone controls nearly 50–55% of the gold jewellery market in the country. Moreover, among Indian Ultra High Net Worth Individuals (UHNIs), approximately 17% of investable wealth is allocated to luxury assets — with watches ranking first, followed by art and jewellery.

While it is true that jewellery, particularly high-end or designer pieces, often represents a luxury purchase, but it’s not so black and white. In India, gold holds substantial cultural and emotional value. It is deeply embedded in traditional customs, religious observances, and celebratory events such as weddings and festivals, where purchases — even by middle-class families — often cross the ₹10 lakh threshold. However, these transactions are typically not regarded as luxury consumption in the conventional sense.

That said, when jewellery is purchased as an investment, for display of wealth, or in the form of premium diamonds or branded ornaments, such acquisitions undeniably align with the characteristics of luxury.

It appears that the government, at this stage, has deliberately excluded jewellery from the notified list in order to maintain clarity and simplicity in the initial phase of implementing the provision. Introducing a separate monetary threshold or distinct treatment for jewellery could have complicated compliance and enforcement.

However, it remains entirely plausible that jewellery may be brought within the purview of the luxury goods TCS framework at a later stage — once stakeholders are accustomed to the system — particularly if the government’s broader objective is to further widen and deepen the tax base.

What is the Rate of TCS on Luxury Goods?

The Tax Collected at Source (TCS) on notified luxury goods will be levied at 1% of the total sale consideration, i.e., the invoice value including GST and other charges.

When Does This TCS Come Into Effect?

While the government had announced the TCS on luxury goods in the Union Budget 2024, it was proposed to be applicable from January 1, 2025 but the official notification was issued on April 22, 2025, and with that, the provision came into force from the same date — April 22, 2025.

What Buyers & Sellers Need to Know

For Buyers: What It Means for Your Wallet

• A 1% TCS will be collected at the time of payment if you’re purchasing any luxury good valued over ₹10 lakh.
• The collected TCS will be linked to your PAN and reflected in your Form 26AS and AIS.
• You can claim this amount as a credit when filing your Income Tax Return (ITR).
• If you don’t have any tax payable, you’re eligible for a refund of the excess TCS.

For Sellers: What You Must Do to Stay Compliant

• You are legally responsible to collect and deposit1% TCS on each high-value luxury item sold above ₹10 lakh.
• Ensure timely TCS compliance by filing Form 27EQ quarterly.
• Provide buyers with a TCS certificate, so they can claim tax credit when filing ITR.
• Be prepared for stricter KYC checks and documentation, as luxury purchases now fall under increased scrutiny by tax authorities.

Common FAQs Answered

Will TCS Apply on a Single Luxury Item Worth Over ₹10 Lakh?

Yes. It applies on purchase of single luxury item.

Is the ₹10 lakh Threshold Applicable Qua Total Purchases or Qua Each Item?

The limit is per item, not per financial year.
For example, if you buy two watches worth ₹7 lakh each, no TCS will apply, since neither item individually crosses the ₹10 lakh mark.

Does the ₹10 Lakh Threshold Include GST?

Yes. TCS is collected on the total invoice value, which includes GST and other charges.
The law refers to the “consideration received”—hence, the entire sale value is considered for TCS purposes.

Final Thoughts

This move isn’t just about collecting tax — it’s a powerful audit tool. Spending habits often reveal income trails. If a taxpayer shows ₹5 lakh income but purchases a ₹15 lakh luxury item — expect the tax department to ask questions. So if you’re buying luxury, ensure your income story backs it up.