New Tax Rules on Luxury Goods in India: What You Need to Know

The Central Board of Direct Taxes (CBDT) has expanded the scope of Tax Collected at Source (TCS) to include luxury goods priced above ₹10 lakh, effective April 22, 2025. The 1% TCS now applies to items like wristwatches, yachts, art pieces, handbags, and more. While the move aims to enhance tax transparency and widen the tax net, experts are divided. Concerns include potential consumer deterrence and compliance challenges, but it also targets high-net-worth individuals to improve tax reporting and accountability.

In an effort to refine tax compliance and widen the tax net, the Central Board of Direct Taxes (CBDT) has introduced new regulations expanding the scope of Tax Collected at Source (TCS) on high-value luxury goods. Announced via a notification on April 22, 2025, these changes fall under the amended Section 206C(1F) of the Income Tax Act, 1961, and became effective the same day. Here's a breakdown of the key aspects of these updates and expert opinions on what they might mean for businesses and consumers.

A Broader Reach for TCS

Previously, Section 206C(1F) applied exclusively to motor vehicles priced above ₹10 lakh. However, under the Finance (No. 2) Act, 2024, the scope has been significantly widened. The new rules mandate a 1% TCS on a variety of luxury goods valued over ₹10 lakh, as specified by the Central Government.

The Luxury Goods Affected

According to CBDT's Notification No. 36/2025, the following items are now subject to TCS when their value exceeds ₹10 lakh:

1. Wristwatches

2. Art pieces, including antiques, paintings, and sculptures

3. Collectibles such as coins and stamps

4. Yachts, rowing boats, canoes, and helicopters

5. Sunglasses

6. Handbags and purses

7. Shoes

8. Sportswear and equipment, such as golf kits and ski-wear

9. Home theatre systems

10. Horses used in horse racing or polo

This comprehensive list underscores the government's intention to include a broad range of high-end goods within the tax framework.

Implementation Timeline

The amended provisions are already in effect as of April 22, 2025. Businesses dealing in these luxury items are now required to comply with the new TCS rules immediately.

The move has sparked a mix of reactions among tax and industry experts.

Concerns About Consumer Behavior

Ankit Jain, Partner at Ved Jain and Associates, expressed concerns that the 1% TCS could backfire. "Requiring Permanent Account Number (PAN) details for purchases above ₹2 lakh was already in place. Adding TCS might discourage buyers, potentially reducing GST collections for formal retailers while giving an edge to grey market operators," he explained. Jain also noted that similar TCS rules for motor vehicles have not been particularly effective in curbing tax evasion.

Compliance Challenges for Businesses

On the other hand, Kunal Savani, Partner at Cyril Amarchand Mangaldas, highlighted the compliance implications. "This represents a significant policy shift aimed at enhancing transparency. Businesses must upgrade their systems to ensure compliance, maintain accurate records, and remit TCS on time. Non-compliance could invite penalties, interest, and other legal consequences under the Income Tax Act," he stated.

Aimed at High Net-Worth Individuals

According to Alok Agrawal, Partner at Deloitte India, the impact may be limited due to the high-value threshold of ₹10 lakh. "In many cases, this threshold might not be triggered often. However, the intent is to deepen the tax net, especially as luxury spending increases. This could lead to closer scrutiny of high-net-worth individuals (HNIs) who make such purchases but fail to report corresponding taxable income," Agrawal emphasized.

A Step Toward Greater Tax Transparency

The expansion of TCS to a wider range of luxury goods marks a notable shift in India's tax policy. While it aims to improve transparency and broaden the tax base, it also raises concerns about unintended consequences, such as reduced consumer spending or increased reliance on informal markets. For businesses, the priority will be to adapt to the new compliance requirements and avoid penalties for non-compliance.

As these rules settle into practice, their true impact on tax collections and consumer behavior will become clearer. For now, both buyers and sellers of luxury goods must navigate the new regulatory landscape carefully.