Starting April 22, 2025, the Income Tax Department has implemented a new tax compliance measure: 1% TCS (Tax Collected at Source) is now applicable on luxury goods priced above ₹10 lakh. This rule is aimed at tracking high-value purchases, improving transparency, and widening the tax base.
However, there’s another layer to consider: GST (Goods and Services Tax), which is already applicable on such luxury items at high rates (often 18–28%). Let’s understand the full tax impact—TCS + GST—and how it affects both buyers and sellers.
What is the New TCS Rule?
- Effective Date: April 22, 2025
- Applicable On: Sale of luxury goods above ₹10 lakh per invoice
- Rate: 1% of the sale value (collected by seller)
- Collected From: Buyer and deposited by the seller under the buyer’s PAN
- Claimable: Yes, the buyer can claim this TCS as credit in their income tax return
What are “Luxury Goods”?
The following goods are notified
- Wrist watches
- Art pieces such as antiques, paintings, and sculptures
- Collectibles such as coins and stamps
- Yachts, rowing boats, canoes, and helicopters
- Sunglasses
- Bags such as handbags and purses
- Shoes
- Sportswear and equipment such as golf kit and ski-wear
- Home theatre systems
- Horses for horse racing in race clubs and polo.
Full Tax Impact: GST + TCS
Let’s break it down with an example:
Example: Buying a Designer Watch worth ₹12,00,000
- Base Price: ₹12,00,000
- GST @ 18%: ₹2,16,000
- TCS @ 1% on Base Price: ₹12,000
- Total Invoice Value (incl. GST): ₹14,16,000
- Total Amount Paid (incl. TCS): ₹14,28,000
Note: TCS is over and above the GST amount.
Can the Buyer Claim GST Input Tax Credit (ITC)?
Yes, but with a condition:
- For business use: If you are a GST-registered buyer purchasing luxury goods for business use, you may claim Input Tax Credit (ITC) on the GST component (₹2,16,000 in this case), provided the goods are not classified under blocked credits under Section 17(5) of the CGST Act.
- For personal use: If the purchase is for personal consumption, ITC is not allowed.
So, if you’re a professional or business buying luxury items for office décor, resale, or gifting (with proper documentation), you may be eligible to claim ITC.
What About TCS?
TCS is not part of GST. It is an income tax credit, which means:
- It will reflect in your Form 26AS
- You can claim it while filing your ITR
- It will be adjusted against your total income tax payable or refunded if not required
Key Considerations for Buyers:
- 🧾 Increased Upfront Payment: You’ll now pay GST + TCS, which increases cash outflow even if TCS is refundable.
- 💳 Use Banking Channels: To avoid scrutiny, make large purchases through traceable modes like bank transfers or cards.
📄 Keep Your PAN Handy: It’s mandatory for TCS reporting.
What Should Sellers Do?
- Charge and Collect 1% TCS on all qualifying invoices.
- Deposit TCS using the buyer’s PAN.
- Issue Form 27D (TCS Certificate) to buyers.
- Continue to charge GST as usual, and file GSTR-1/3B along with TCS returns.
Final Words
With this new rule, luxury purchases now come under dual tax compliance—GST under indirect tax laws, and TCS under income tax laws. This reflects the government’s broader push for transparency and monitoring of high-value spending.
If you’re a high-value consumer or a luxury goods dealer, make sure your compliance, invoicing, and documentation are fully updated.
Frequently Asked Questions (FAQs) about TCS on luxury goods
According to an Income tax Department circular released on April 24, 2025, here are the details:
Q.1 What changes were brought in section 206C(1F) of the Income Tax Act, 1961 through Finance (No. 2) Act, 2024?
Answer: Earlier, Section 206C(1F) provided for collection of tax at source (TCS) on sale of motor vehicles of value exceeding Rs 10 lakh. 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 Rs 10 lakh, as may be notified by the Central Government in the Official gazette.
Q.2 Which are the luxury goods of value exceeding Rs 10 lakh on which TCS will be levied?
Answer: 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 –
Serial number | Nature of goods |
1. | Any wrist watch |
2. | Any art piece such as antiques, painting, sculpture |
3. | Any collectibles such as coin, stamp |
4. | Any yacht, rowing boats, canoes, helicopters |
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 |
Q.3 Will the TCS will be levied on sale of a single item of the notified goods of value exceeding Rs 10 lakh?
Answer: 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 Rs 10 lakh.
Q.4 When will the new provisions become effective from?
Answer: The new provisions will become effective from the date of publication of notification i.e. 22.04.2025.
Can the buyer be held in default if the seller of specified luxury goods does not deduct TCS?
The accountability is on the seller, as it is the responsibility of the seller to deduct and deposit TCS on high value specified luxury items is on the seller of goods . Therefore the buyer is not at fault. If the seller after collecting the TCS did not deposit the same with the government, he shall be liable for penalty not the buyer.
What is the rate of TCS on specified luxury goods?
TCS will be collected by the seller of such specified luxury goods at 1% rate on the entire value (of any of the notified items) so long as the sale consideration exceeds Rs 10 lakh.
TCS is not an extra tax, it’s an advance tax which can be claimed at the time of income tax return (ITR) filing. Once the seller collects TCS from you, they will deposit it with the government and also file a TCS return intimating that he collected TCS against your PAN. Once the TCS amount is deposited against your PAN, then you can use it to claim an income tax credit and pay a lower tax in the ITR filing.
