TCS on Luxury Goods: New Tax Rules in India

Summary: The Indian government has expanded the scope of Tax Collected at Source (TCS) under Section 206C(1F) of the Income-tax Act, 1961, to include certain luxury goods. This provision, initially applicable to motor vehicles exceeding ₹10 lakh, now extends to ten new categories, effective April 22, 2025. The Central Board of Direct Taxes (CBDT) notification No. 36/2025 lists these goods, which include wrist watches, art pieces (antiques, paintings, sculptures), collectibles (coins, stamps), yachts, rowing boats, canoes, helicopters, sunglasses, bags (handbags, purses), shoes, sportswear and equipment (golf kits, ski-wear), home theatre systems, and horses for racing and polo. Sellers of these items, when the value of a single item exceeds ₹10 lakh, are required to collect TCS at a rate of 1% from the buyer. If the buyer does not provide their Permanent Account Number (PAN), the TCS rate increases to 5%. This move aims to bring high-value transactions into the tax net, enhance transparency, and curb potential tax evasion. Sellers must obtain a Tax Deduction and Collection Account Number (TAN), update their systems, and file quarterly TCS returns (Form 27EQ). The buyer can claim credit for the TCS amount against their income tax liability. This expansion of TCS is expected to impact luxury retailers, who must now comply with these new regulations, and buyers, who will need to ensure they provide their PAN details and keep records of these transactions. A key judicial clarification has established that TCS is not part of the vehicle’s purchase value for the purpose of calculating state road tax. Form 27EQ has also been amended to include these new categories of goods.

TCS on Luxury Goods – Comprehensive Analysis of Section 206C(1F) – Income-tax Act, 1961: Section 206C(1F) – Tax Collected at Source on High-Value Sales (Comprehensive Analysis)

MINISTRY OF FINANCE
(Department Of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)

Notification No. 36/2025- Income Tax| Dated: 22nd April, 2025

S.O. 1825(E).—In exercise of the powers conferred by clause (ii) of sub-section (1F) of section 206C of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the following goods of the value exceeding ten lakh rupees for collection of tax at source as specified therein –

2. This notification shall come into force on the date of its publication in the Official Gazette.

[No. 36/2025/F. No. 370142/11/2025-TPL]

ASHISH KUMAR AGRAWAL, Dy. Secy .

ANALYSIS

Section 206C of the Income-tax Act, 1961 deals with Tax Collected at Source (TCS), requiring sellers of certain goods to collect a small percentage of the sale amount as income-tax from the buyer and remit it to the government

Sub-section 206C(1F), introduced in 2016, specifically targets high-value retail sales. Its objective is to bring large transactions into the tax net by mandating a 1% TCS on big-ticket purchases. Initially confined to luxury car sales, its scope has since expanded. This analysis covers the current scope of 206C(1F) as of 2025, key amendments and interpretations, landmark rulings, and practical implications for industries like automobiles, luxury goods, and real estate.

Section 206C(1F)

What products are covered u/s 206C(1F)

(a) Motor Vehicles: Any sale of a motor vehicle above ₹10,00,000 (e.g. cars, SUVs, high-end bikes, etc.). This applies per vehicle sold – not on aggregate yearly purchases. For example, if a buyer purchases two vehicles of ₹8 lakh each, no TCS is due (each is below ₹10 lakh). But one vehicle costing ₹12 lakh would attract 1% TCS (₹12,000).

(b) Notified Luxury Goods: Finance Act 2024 extended 206C(1F) beyond vehicles to other luxury goods. Effective 1 January 2025, the government can notify specific goods over ₹10 lakh for TCS. On 22 April 2025, CBDT issued notifications listing ten categories now covered. any – 1. wrist watch, 2. any art piece such as antiques, painting, sculpture, 3. any collectibles such as coin, stamp, 4. any yacht, rowing boat, canoe, helicopter, 5. any pair of sunglasses, 6. any bag such as handbag, purse, 7. any pair of shoes, 8. any sportswear and equipment such as golf kit, ski-wear, 9. any home theatre system, 10. any horse for horse racing in race clubs and horse for polo.

Let us analyze these in a little more detail

Watches: High-end timepieces from brands like Rolex, Omega, and Patek Philippe frequently exceed the ₹10 lakh threshold. Sellers of such watches are now required to collect TCS, similar to how automobile dealers operate. This means registering for TAN, updating billing systems, and filing quarterly TCS returns. While the impact on buyer cost is minimal—since the TCS is creditable in the income tax return—it does formalize transactions that previously may have gone under-reported, especially in cases involving cash or unaccounted funds. For non-taxpayers, however, the 1% may cause a temporary cash flow strain since the amount can only be recovered later as a refund.

Art and Antiques: Art galleries and auction houses dealing in valuable works—paintings, sculptures, or antiques—are now within the scope of TCS. Art transactions that exceed ₹10 lakh are required to be reported, with PAN details of the buyer and 1% TCS collected. This is significant in an industry that has historically lacked transparency. While most individual artists may remain outside this provision (unless subject to audit), institutional sellers and auctioneers will need to ensure compliance. This also creates an audit trail that can be useful when capital gains arise from future sales of the same artwork.

Jewellery: Interestingly, jewellery has not been included in the April 2025 notification listing luxury items under Section 206C(1F). This may be deliberate, as jewellery purchases above ₹2 lakh already require mandatory PAN disclosure under Rule 114B. However, items like gold coins or rare numismatic pieces might still be captured if interpreted as “collectibles.” So, while a ₹15 lakh diamond necklace does not trigger TCS, a ₹15 lakh coin collection purchase likely would. This gap might be closed in future notifications if authorities deem it necessary.

Yachts, Boats, and Private Aircraft: Sellers of high-value recreational vehicles like yachts and helicopters are now squarely covered. While the market for such items is limited to a very affluent demographic, applying TCS here ensures even these outlier transactions are reported. If such vehicles are bought for business use—say by an airline or charter company—the tax still applies unless the buyer qualifies for exemption (e.g., government departments). The 1% tax remains claimable as a credit in such cases.

Luxury Accessories (Bags, Shoes, Designer Apparel): Designer boutiques selling exclusive handbags or custom footwear may occasionally cross the ₹10 lakh threshold. Although rare, items like Hermès Birkin bags or haute couture shoes can command such prices. With the new rule, these sales now attract TCS. This move signals the government’s intent to monitor even lifestyle-related luxury spending. Foreign luxury brands operating in India may need to update their systems and train staff to remain compliant.

Sports Gear and Home Theatres: Specialty items like golf kits, ski equipment, or luxury home theatre systems, often purchased by high-net-worth individuals, also come within the scope. An advanced home audio setup in a luxury residence, for example, could easily cost ₹15–20 lakh. Sellers—typically AV solution providers or niche sports equipment retailers—must now collect TCS when such items cross the threshold. Though such sales may be infrequent, they represent a valuable compliance opportunity to plug information gaps.

Practical Impact on Retailers: Many luxury retailers are encountering TCS obligations for the first time. They will need to acquire TANs, modify their invoice formats, update accounting software, and ensure quarterly reporting in Form 27EQ. The government has eased this transition by assigning unique category-wise codes in the updated form, which aids tracking and analytics. While some sellers fear buyer resistance, especially over a new 1% line item, most buyers are likely to accept it since it is fully creditable. Importantly, this move curtails the incentive to manipulate invoices—such as splitting a ₹20 lakh purchase into two artificial ₹9.9 lakh sales to dodge TCS. Authorities can challenge such arrangements if done with the intention of evasion.

FAQ’s released :

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 – (as specified earlier)

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.

Other Provisions

(i) Rate of TCS: 1% if value exceeds 10,00,000 per vehicle or per good. Where PAN is not given by the buyer then TCS will be collected @ 5% [206CC]

No Higher TCS for Non-Filers: From 2021 until March 2025, Section 206CCA imposed a higher TCS rate (typically 5%) if the buyer had not filed tax returns in the past two years and the TCS amount was above a certain limit. This rule applied to 206C(1F) as well. However, Finance Act 2025 omitted Section 206CCA, removing this higher rate from April 1, 2025

(ii) TCS is collectible at the time of receipt of the said amount Example: if total price of vehicle is 20 lacs and 5 lacs is received as advance and balance received at a later date then TCS will need to be collected separately at two stages i.e. 1% or 5 lacs when advance is received and 1% of 15 lacs when balance is received.

(iii) RBI Exemption: Payments received from the Reserve Bank of India are exempt from TCS under this section, as per Notification No. 115/2024.

(iv) CBDT vide Circular No. 22/2016, dated 8.6.2016 and Circular No. 23/2016, dated 24.6.2016 has clarified the following:

• Whether TCS@1% is on sale of motor vehicle at retail level or also on sale of motor vehicles by manufacturers to dealers/distributors? To bring high value transactions within the tax net, section 206C has been amended to provide that the seller shall collect the tax @ 1% from the purchaser on sale of motor vehicle of the value exceeding 10 lakhs. This is brought to cover all transactions of retail sales and accordingly, it will notapply on sale of motor vehicles by manufacturers to dealers/distributors.
• Whether TCS@1% on sale of motor vehicle is applicable only to luxury cars? No, as per section 206C(1F), the seller shall collect tax@1% from the purchaser on sale of any motor vehicle of the value exceeding Rs. 10 lakhs.
• How would the provisions of TCS on sale of motor vehicle be applicable in a case where part of the payment is made in cash and part is made by cheque? that the provisions of TCS on sale of motor vehicle exceeding Rs. 10 lakhs is not dependent on mode of payment. Any sale of motor vehicle exceeding Rs. 10 lakhs would attract TCS@1%.

(v) Threshold and Valuation Interpretation:

TCS under Section 206C(1F) applies only when the value of a single item exceeds ₹10,00,000. The term “value” refers to the total sale consideration paid by the buyer for the item. In practical terms, this means the invoice amount, including any GST or indirect taxes, is used as the base for computing the 1% TCS.

There is a CBDT Circular No. 23/2017 dated 19th July 2017, which clarifies that for TDS, if GST is separately indicated in the invoice, **TDS should be deducted on the amount excluding GST. However this circular applies only to certain TDS provisions, and there is no corresponding circular or notification that permits TCS under 206C(1F) to be applied on the value exclusive of GST.

Further CBDT Circular No. 17/2020 dated 29th September 2020 It clarified that: “If the seller is liable to collect TCS under section 206C(1H), no adjustment on account of GST is required to be made for the collection of tax.” This means that TCS under 206C(1H) is to be calculated on the total invoice value, including GST.

By logical extension: Although Circular 17/2020 mentions only 206C(1H), the logic has been applied by professionals and department alike to 206C(1F) too — i.e., TCS under Section 206C(1F) should also be on the gross invoice amount including GST, unless otherwise clarified.

Example: if a wristwatch has an ex-showroom price of ₹10,00,000 and GST of ₹1,80,000, the total invoice value becomes ₹11,80,000. In such a case, TCS will be 1% of ₹11,80,000, which amounts to ₹11,800.

However, charges that are statutory in nature, such as vehicle registration fees, which are collected by the seller on behalf of the government, are typically not treated as part of the sale consideration of the goods.

Importantly, the ₹10 lakh threshold applies per item, and the wording “exceeds ₹10,00,000” means TCS is not triggered if the sale value is exactly ₹10,00,000—it must go beyond that amount for TCS to apply.

(vi) Apart from these, all retail buyers (whether individuals or companies) must pay the 1% to the seller on covered transactions. The seller then deposits the TCS and files a TCS return (Form 27EQ) quarterly and issues a TCS certificate (Form 27D) to the buyer. The buyer can claim credit of the TCS against their final tax liability or receive a refund if excess

(vii) Key Judicial Clarification – TCS Not Part of Vehicle’s Purchase Value for Road Tax

A critical question addressed by the courts was whether the 1% Tax Collected at Source (TCS) on the sale of vehicles should be included in the “purchase value” when computing state road tax or registration charges. This issue was conclusively resolved in the case of Dr. Antony Daniel v. Transport Commissioner (2023), where the Kerala High Court held that TCS should not be treated as part of the vehicle’s cost for the purpose of levying road tax.

Under the Kerala Motor Vehicles Taxation Act, the term “purchase value” is used to determine the tax payable on vehicle registration. The court found that adding the TCS amount to the vehicle price for tax purposes was inconsistent with the nature of TCS, which is essentially an advance income-tax collected by the seller on behalf of the government. Notably, Kerala had already amended its law in 2020 to expressly state that TCS must be excluded from the purchase value.

For example, if a vehicle is sold for ₹49.5 lakh with an additional ₹50,000 collected as TCS, and the applicable road tax rate is 10%, the tax would be calculated only on ₹49.5 lakh—not on the combined amount of ₹50 lakh. This ruling effectively protects consumers from a “tax on tax” scenario and affirms that TCS is not a component of the actual sale consideration.

A related issue came up under GST after its introduction in 2017. The question was whether GST should be charged on the TCS component, given that TCS is a statutory tax and not a payment for goods or services. In M/s. PSN Automobiles (2019), the Kerala High Court acknowledged that this was a complex issue requiring detailed legal analysis.

However, the general consensus—reflected in practice—is that GST is not applicable on TCS, since it is not a part of the supply value. Most dealerships handle TCS as a separate line item on invoices, outside the GST computation. Furthermore, guidance from the tax department reinforces that TCS is collected by the seller on behalf of the Income Tax Department, and not a consideration for any supply made by the seller.

(vii) Form 27EQ modified

MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)

Notification No. 35/2025 – Income Tax | Dated: 22nd April, 2025

G.S.R. 252(E).––In exercise of the powers conferred by section 295 read with section 206C of the Income- tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (Eleventh Amendment) Rules,

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962, in Form 27EQ, in the Annexure, in the Notes thereto, in Note 11, in the table, after the row relating to “Collection at source on sale of motor vehicle”, the following shall be inserted, namely:––

[No. 35/2025/F. No. 370142/11/2025-TPL]

ASHISH KUMAR AGRAWAL, Dy. Secy.

Note : The principal rules were published in the Gazette of India, Extraordinary, Part II, section 3, sub-section (ii), vide notification number S.O. 969 (E), dated the 26th March, 1962 and were last amended vide notification number G.S.R 221 (E), dated the 07^th April, 2025.

Notes:

[1] Upto Sept 30th 2020 the words were “if books of accounts are required to be audited in the immediately preceding previous year”.

[2] Added w.e.f. 01/01/2025