Beginning April 22, 2025, the Indian government will introduce a 1% Tax Collected at Source (TCS) on luxury goods priced above ₹10 lakh. This move, stemming from the Finance Act, 2024, has been formalized through notifications issued by the Central Board of Direct Taxes (CBDT). High-ticket indulgences such as wristwatches, yachts, handbags, sports equipment, and even horses for polo will now attract this additional tax layer.
This tax falls under Section 206C of the Income Tax Act, placing the burden of collection squarely on the seller, who must then deposit the collected tax against the buyer’s PAN (Permanent Account Number). For buyers, the good news is that this TCS can be claimed as a credit while filing their Income Tax Return (ITR), similar to how Tax Deducted at Source (TDS) works for salaries and investments.
The primary intent behind this measure is to tighten the audit trail and bring more transparency to high-value discretionary spending—let’s face it, who buys a helicopter without a paper trail? This is part of a broader government strategy to expand the tax base and ensure that luxury spending doesn’t fly under the radar (yes, even if it’s in a private jet).
In terms of compliance, sellers must adhere strictly to timelines, ensuring that TCS is collected and reported accurately. On the flip side, buyers may need to furnish additional KYC documentation at the time of purchase. This includes obtaining a TCS certificate, which confirms that the tax has indeed been deposited against their PAN.
So, what kind of items fall under this regulation? Here’s the glittering list of taxable indulgences:
- Wristwatches
- Art pieces (antiques, paintings, sculptures)
- Collectibles (coins, stamps)
- Transportation luxuries (yachts, canoes, helicopters)
- Sunglasses and designer bags (handbags, purses)
- Luxury footwear and sportswear (golf kits, ski wear)
- High-end home theatre systems
- Race horses for the polo and racing elite
To put it in perspective, a ₹30 lakh purchase—say, a luxury yacht or a designer art piece—would now come with an additional ₹30,000 in tax at the point of sale. This is in line with existing TCS provisions on motor vehicles priced over ₹10 lakh, ensuring consistency across luxury sectors.
According to Sandeep Jhunjhunwala, Partner at Nangia Andersen LLP, this regulation is a step towards formalising the luxury market, helping the government keep better tabs on discretionary spending. While he acknowledges the potential transitional hiccups for sellers and buyers alike, he emphasizes that the long-term outcome will likely be improved regulatory oversight and market transparency.
In essence, the message is clear: luxury isn’t just a lifestyle—it’s also a line item on the tax department’s radar. So, if you’re planning on splurging post-April 2025, remember to factor in that extra 1%—because when it comes to big-ticket glamour, the taxman wants his share too.
