Buying luxury bags, watches or shoes? Get ready to pay TCS on them

On April 22, 2025, as a follow-up to the Union budget 2024-25 tabled in July 2024, the Central Board of Direct Taxes issued notification to levy 1 per cent tax collected at source (TCS) on purchasing select luxury items exceeding Rs. 10 lakh with immediate effect. Originally, this was proposed to come into effect from January 1, 2025. Prior to this, the sale of a motor vehicle of value exceeding Rs. 10 lakhs, foreign travel, foreign remittances, and overseas tour packages were subject to TCS. Now, the list has expanded by including a few more luxury goods.

The extended list

As per the latest notification, buying of wrist watch, antiques, painting, sculpture, collectibles such as coin, stamp, yacht, rowing boat, canoe, helicopter, sunglasses, handbag, purse, pair of shoes, sportswear and equipment such as golf kit, ski-wear, home theatre system and horse, if their value exceeds Rs. 10 lakh, are eligible for TCS. The list is an inclusive and yet an open one. This means the Central Government may keep on adding other luxury goods as, and when it feels. 

Seller’s responsibility

A seller is under an obligation to collect a sum equal to 1 per cent from the buyer as income tax and remit it to the Central Government on or before 7th day of the following month in which the transaction occurred. For instance, all the TCS collected on luxury goods sold between April 23 to April 30 are required to be deposited by May 7, 2025. In case the seller failed to deposit the deducted TCS, he is liable for penal consequences as per law. In addition to depositing, he is required to file the TCS quarterly return within the due dates and provide a copy of TCS certificate – Form 27D – within fifteen days from the date of filing to the buyer, consisting the details of name, PAN of the seller and buyer, TAN of the seller, total tax collected, date of collection and rate of tax applied.  

Buyer/taxpayer’s responsibility

It is appropriate to note that TCS is not an extra tax, but it is like an advance tax and available to claim as ‘tax credit’ at the time of filing income returns. Thus, a responsibility lies on the buyer / taxpayer to collect the TCS Certificate – Form 27D – from the tax collector and compare it with his Form 26AS, whether the same was reflected accurately. If it is reported, the taxpayer is allowed to pay a lower income tax while filing the return of income. In any case, if his net tax liability is less than the TCS amount collected, the balance amount will be returned as a tax refund.  

In the last two decades, economic growth has moved a large section of the population from lower strata to a wealthier middle class, with disposable income in hand and a greater desire for premium products. India’s luxury market is estimated to reach $85-90 billion by 2030. Thus, the Central Government is exploring the TCS route to nudge more people to tax compliance. Since the TCS will be levied on every single transaction, it ensures higher collections without the tax administration’s direct involvement, expands the tax base and helps the tax authorities to track such transactions and compare them with the taxpayer’s profile.