New Tax Rules: Now Pay 1% Additional Tax on Luxury Goods Worth More Than Rs 10 Lakh
In a move to increase tax transparency and capture high-value purchases, the Income Tax Department has issued a notification that will require a 1% Tax Collected at Source (TCS) on the purchase of certain luxury goods valued above Rs 10 lakh. This new rule will come into effect from April 22, 2025.
- The move is part of the government’s effort to widen the tax base and track spending on luxury items.
- The 1% TCS will apply to a wide range of luxury goods, significantly impacting high-end consumers.
What Luxury Goods Are Affected?
The 1% TCS will apply to the sale of various luxury items including but not limited to:
- Wrist watches, luxury handbags, and sunglasses
- High-end footwear and sportswear
- Art objects such as paintings, sculptures, and antiques
- Collectible items like coins and stamps
- Yachts, helicopters, and home theatre systems
- Horses intended for racing or polo
- TCS will be applicable on the entire transaction amount for goods exceeding Rs 10 lakh.
- The provision applies regardless of the nature of the item as long as the value crosses the threshold.
The Purpose Behind the 1% TCS Rule
Introduced as part of the Finance Act, 2024, and aligned with the Union Budget presented in July 2024, this TCS provision aims to bring greater tax transparency and increase compliance. As high-value luxury items continue to see increased demand, the government is looking to track these purchases more effectively.
- This move is particularly relevant to high-net-worth individuals (HNIs) who make significant purchases without corresponding tax filings.
- It’s designed to bridge any gaps in the tax net by monitoring purchases of luxury goods and ensuring these transactions are accounted for.
Operational Details and Impact
According to Alok Agrawal, a partner at Deloitte India, while the Rs 10 lakh threshold may seem high, it is not likely to affect many transactions in the short term. However, the new rules are expected to trigger questions for individuals who are making large purchases without filing income tax returns or reporting sufficient taxable income.
- The TCS is levied on the entire value of the item as long as the sale price exceeds Rs 10 lakh, regardless of whether the buyer is eligible for exemptions or deductions.
- The notification came into effect on April 22, 2025, immediately operationalizing the rule after the announcement in the 2024 Budget.
Enhancing Tax Transparency
Munjal Almoula, Head of Tax at BDO India, noted that the 1% TCS on luxury goods will enhance tax transparency and provide better tracking of high-value purchases. This rule is in line with global trends in tax surveillance and reporting on luxury consumption.
- The introduction of TCS on luxury goods is a strategic step toward improving tax collection and compliance for high-value items.
- It is expected to have an impact on luxury retailers, particularly in monitoring transactions over Rs 10 lakh.
Other Budget Changes and TDS/TCS Simplification
The February 2025 Budget also introduced several changes aimed at simplifying TDS and TCS compliance. These reforms, effective from April 1, 2025, are meant to reduce complexities for both taxpayers and businesses. This includes making TDS and TCS processes easier, particularly for those dealing with large transactions, business payments, or international transfers.
- The changes are intended to reduce bureaucratic hurdles and ensure smooth tax compliance for individuals and businesses alike.
- These adjustments will also help ensure that tax deduction and collection are more efficient and less burdensome for regular taxpayers.
The introduction of the 1% TCS on luxury goods above Rs 10 lakh marks a significant shift in the way high-value purchases are taxed in India. With the aim to increase tax compliance and capture high-value consumption trends, this rule will provide better tax transparency and track spending on luxury goods. While it may not affect every consumer immediately, it will encourage taxpayers to report their earnings more accurately, particularly those involved in high-end purchases.
