1% TCS on Luxury Goods (Effective April 22, 2025)

Introduction: Welcome to the New Luxury Tax Era!

In a significant move, the Ministry of Finance introduced a new compliance mechanism through Notification No. 36/2025-Income Tax dated 22nd April 2025. For the first time, certain luxury goods priced above 10 lakh will attract a 1% Tax Collected at Source (TCS). This is not just about collecting more tax — it’s a strategic step towards better tracking of high-value spending.

Let’s break down everything you need to know in a simple, clear way!

Why Has the Government Introduced 1% TCS on Luxury Goods?

• Booming Luxury Market: India’s luxury market stood at $17 billion in 2023 and is projected to touch $90 billion by 2030.
• Increased High-Value Spending: Post-COVID, there has been a surge in big-ticket luxury purchases.
• Tax Base Widening: TCS helps the government monitor and match expenditures with declared incomes.
• Visibility in AIS: High-value luxury buys will now reflect in your Annual Information Statement (AIS), helping the Income Tax Department to spot mismatches.

Pro Tip for Buyers: If your spending doesn’t match your income declared in your ITR, expect queries from the tax department!

What Items are Covered Under the 1% TCS Rule?

Important Exclusions:

• Jewellery, designer clothes, expensive electronics (other than home theatres), and luxury pens are NOT covered yet.

When Does It Start?

• Effective from 22nd April 2025.
• Not retroactive — applicable on purchases made on or after this date.

TCS Rate and Threshold

• Threshold: Purchase value must exceed ₹10 lakh per item (including GST and other charges).
• TCS Rate: 1% of the total invoice value.

Example: If you buy a wristwatch worth 15 lakh (inclusive of GST), 15,000 will be collected as TCS.

Impact on Buyers and Sellers

Buyers:

• 1% TCS added to your invoice.
• TCS linked to your PAN.
• Claim TCS as tax credit in your ITR or seek refund.

Sellers:

• Mandatory to collect TCS if item value exceeds 10 lakh.
• File quarterly returns using Form 27EQ.
• Issue TCS certificates to buyers.
• Maintain proper KYC records.

FAQs: Your Quick Doubts Cleared!

Q1: Does TCS apply to multiple purchases totaling 10 lakh?

• No. The 10 lakh threshold is per item, not cumulative.

Q2: Is GST included while calculating 10 lakh?

• Yes! Total invoice value, including GST and other charges, is considered.

Q3: Will buying two watches worth 7 lakh each attract TCS?

• No. Since neither item exceeds 10 lakh individually, no TCS will be collected.

Q4: Is jewellery covered?

• As of now, no. But it may be notified in future updates.

Q5: What if I have no tax payable at the end of the year?

• You can claim a refund of the TCS collected.

Q6: Are designer sandals covered?

• Only “shoes” are explicitly mentioned. This could cause interpretational issues.

Expert Observations

• Jewellery Left Out: Gold and jewellery have been kept outside the scope, despite high-value transactions being common.
• Ambiguity on “Shoes”: Footwear other than “shoes” (e.g., sandals, sneakers) may escape TCS for now.
• Focus Area: Clearly aimed at lifestyle and conspicuous luxury consumption.

Practical Tips for Buyers

• Confirm if TCS is collected and reflected properly on your invoice.
• Link your PAN correctly during purchase.
• Track your Form 26AS and AIS for TCS credits.

Practical Tips for Sellers

• Update billing software to account for TCS.
• Collect and deposit TCS on time.
• Inform customers transparently about TCS deductions.

Final Thoughts: Luxury Now Means Responsibility

TCS on luxury goods isn’t just another tax — it’s a compliance trigger. As luxury consumption rises, expect tighter scrutiny. Buyers must ensure their income declarations justify their spending, while sellers must integrate TCS seamlessly into their billing and reporting systems.

In short: If you can afford luxury, be ready to afford the paperwork too!

Stay tuned for future updates as the government may expand the list and introduce clarifications on grey areas like designer clothing, high-end gadgets, and premium jewellery.

Note: This article is based on Notification No. 36/2025-Income Tax and related circulars issued up to April 24, 2025.

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