The Central Board of Direct Taxes (CBDT) has announced a new rule on Tax Collected at Source (TCS) for luxury goods. This was first mentioned in the Budget 2024 and is now officially notified through two new announcements on April 22, 2025.
Here's everything you need to know in simple terms.
What is TCS?
TCS stands for Tax Collected at Source. It means the seller of certain goods collects tax from the buyer at the time of sale, and deposits it with the government. This tax is collected in addition to the price of the goods.
Just like your employer deducts TDS (Tax Deducted at Source) from your salary, TCS helps the government track big purchases and ensure proper tax compliance.
Which Luxury Goods Are Covered?
As per the new notification, TCS at 1% will be collected on the following luxury items if the value exceeds ₹10 lakh:
- Wristwatches (e.g., Omega, Rolex)
- Antiques, paintings, sculptures
- Collectibles like rare coins and stamps
- Yachts, helicopters, rowing boats, canoes
- Sunglasses
- Handbags, purses
- Expensive shoes
- Sportswear and sports kits (like golf or ski gear)
- Home theatre systems
- Horses used in racing or polo
When Does This Start?
The official notification date is April 22, 2025, and that's the actual effective date.
So, if someone buys any of these items on or after April 22, 2025, and the purchase price is above ₹10 lakh, the seller must collect 1% as TCS.
Example
Let's say you buy a designer handbag for ₹15 lakh.
- The seller will collect ₹15,000 (1% of ₹15 lakh) as TCS.
- This tax amount will be linked to your PAN.
- Later, when you file your income tax return (ITR), you can claim this TCS as tax credit or get a refund, if it's more than what you owe.
Why Is the Government Doing This?
The government wants to:
- Track luxury spending by high-net-worth individuals.
- Curb cash transactions and unaccounted income.
- Ensure people buying luxury goods are also filing income tax returns properly.
Many luxury items were previously bought in cash, making it hard to trace the buyer. This move improves transparency.
Impact on Buyers and Sellers
For buyers:
- Be prepared to pay 1% extra as tax.
- Share your PAN with the seller.
- Keep proof of TCS paid for claiming it in your ITR.
For sellers:
- They must collect TCS and deposit it with the government.
- File TCS returns quarterly.
- Ensure they have systems to manage this new compliance rule smoothly.
What if You Don't File Returns?
If you're spending lakhs on luxury items but don't file income tax returns, this may raise a red flag. The tax department can now easily check your spending versus your declared income, leading to possible scrutiny.
How to Claim TCS in Your ITR?
- Check if the TCS amount shows up in your Form 26AS or AIS.
- Mention it in your income tax return under "Tax Paid".
- If your total tax liability is less, you can get a refund.
Final Thoughts
This new rule will:
- Help the government widen the tax base.
- Encourage people to stay compliant.
- Reduce black money transactions in luxury goods.
Both buyers and sellers of high-value luxury items should be aware of these changes and act accordingly.
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