New 1% TCS Rule on Luxury Goods Over ₹10 Lakh Kicks In
From April 22, 2025, a 1% tax collected at source (TCS) applies to luxury goods purchases over ₹10 lakh, as per new CBDT rules. Here’s how it affects high-value buyers and the tax landscape.
New Tax Rule on Luxury Goods Aims to Curb Black Money and Track High-End Spending
In a move set to reshape India’s high-end consumer market, the Central Board of Direct Taxes (CBDT) has officially notified the implementation of a 1% Tax Collected at Source (TCS) on luxury goods priced above ₹10 lakh. This rule, first announced in the Union Budget 2024, took effect immediately on April 22, 2025, through a long-awaited notification.
The government’s aim? To increase tax transparency, trace large cash transactions, and bring more high-net-worth individuals (HNIs) into the tax net.
TCS on Luxury Goods: What the New Rule Means
The CBDT’s dual notifications clearly define the goods now subject to the new TCS rule and the financial threshold at which it applies. From luxury watches and high-end handbags to bespoke shoes and designer home entertainment systems, any item that crosses the ₹10 lakh mark will now attract an additional 1% tax at the time of purchase.
Ashish Karundia, a practicing chartered accountant, explains that the TCS will be collected at the point of sale and applies only if the product is sold on or after April 22, 2025. Notably, the period between January 1 and April 21 remains unaffected due to the absence of an earlier notification.
High-Value Shoppers, Take Note
This rule isn’t about minor indulgences—it targets purchases that typically fall outside average consumption patterns. Think of Omega wristwatches, designer sound systems, or limited-edition luxury sneakers. If the price tag exceeds ₹10 lakh, the seller is now legally obligated to collect an extra 1% in tax.
To put that into perspective, buying a ₹30 lakh luxury item will now involve an additional ₹30,000 in tax—collected upfront.
According to Alok Agrawal, Partner at Deloitte India, “TCS at 1% will apply to the total transaction value as long as it crosses the ₹10 lakh threshold, regardless of whether it’s a single item or a bundled purchase.”
Why This Matters: Cracking Down on Unreported Wealth
Experts believe this measure is more than a revenue-generating tool—it’s a surveillance mechanism. For years, high-value goods were purchased with unaccounted cash, escaping the scrutiny of tax authorities. By linking luxury purchases to PAN cards and enforcing real-time tax reporting through sellers, the government hopes to stem the flow of unreported income.
“This puts pressure on those reporting low taxable income but making luxury purchases,” says Abhishek Soni, CEO of Tax2win.in. “It creates a direct mismatch that the tax department can follow up on.”
The Compliance Challenge for Luxury Retailers
While the move aligns with the government’s broader effort to widen the tax base, it presents logistical headaches for sellers. Boutique owners must now collect PAN details, ensure timely tax deposits, issue certificates, and file TCS returns—adding a significant compliance burden.
Rahul Garg, Managing Partner at Asire Consulting, warns that the tax office will soon be inundated with a tsunami of high-value transaction data. “The success of this initiative will depend not just on enforcement but on smart data utilization,” he says. “Otherwise, it risks becoming an exercise in administrative overload.”
Buyers Can Claim Credit in Their ITR
The good news? Buyers aren’t losing this money to the void. Much like Tax Deducted at Source (TDS) on salaries, the TCS collected is tied to the buyer’s PAN. It can be claimed as tax credit during income tax return filing. If your final liability is lower than the TCS amount, you’re entitled to a refund.
Buyers are advised to collect their TCS certificates from sellers and keep them handy when filing taxes.
A Step Toward Greater Tax Equity
The finance ministry, in its 2024 Budget memorandum, highlighted rising luxury spending among India’s elite as a concern. The goal behind the new rule is not just revenue—it’s about fairness. Why should someone who buys a ₹50 lakh handbag report an income of only ₹5 lakh? The TCS rule acts as a red flag, helping tax authorities identify and question such inconsistencies.
Samir Kanabar, Tax Partner at EY India, adds that while the idea is progressive, it must be balanced carefully. “The onus on luxury retailers is heavy,” he notes. “It’s important the government ensures this doesn’t discourage legitimate purchases or create unnecessary friction in retail.”
Final Thoughts: Data-Driven Enforcement Is Key
India’s new TCS rule on luxury goods is a bold attempt to bring accountability to elite spending. However, its success depends largely on how effectively the collected data is analyzed and used. For consumers, the key takeaway is to stay tax-compliant and ensure documentation is in place. For sellers, the clock is already ticking on system upgrades and procedural changes.
As with many tax measures, the devil lies in the details—but for now, the message is clear: luxury purchases are no longer flying under the radar.
Disclaimer:
This article is for informational purposes only and does not constitute legal or financial advice. Please consult a qualified tax advisor or financial expert for personalized guidance based on your individual circumstances.
source : The Economic Times