Stox N Tax

Luxury Comes at a Cost: Decoding the New 1% TCS Rule

Introduction

In an effort to widen the tax base, monitor high-value transactions, and curb tax evasion, the Indian Government has introduced several Tax Collection at Source (TCS) provisions under the Income-tax Act, 1961. A significant recent development is the imposition of 1% TCS on purchase of luxury goods exceeding ₹10 lakhs, as reported on April 23, 2025. This provision has significant ramifications for high-value consumers, dealers of luxury goods, and the financial reporting ecosystem. This article aims to decode the legal framework, applicability, operational mechanism, and the broader financial implications of this TCS provision from a Chartered Accountant’s standpoint.

Legal Framework and Relevant Provisions

The provision falls under the ambit of Section 206C(1H) of the Income-tax Act, 1961, which mandates TCS on sale of goods by a seller whose turnover exceeds a prescribed limit.

Section 206C(1H) – Summary

  • Applicable to a seller whose total sales, turnover, or gross receipts exceed ₹10 crore in the preceding financial year.
  • The seller is required to collect TCS at 0.1% (revised to 1% in certain cases) from the buyer on consideration received exceeding ₹50 lakh in aggregate in a financial year.
  • However, in the case of luxury goods, a separate rate of 1% TCS has been notified under powers granted by the Central Government, as per recent updates.

Scope of Luxury Goods

The term “luxury goods” includes high-end products such as:

  • Luxury cars
  • High-value watches
  • Precious jewellery and ornaments
  • High-end electronic gadgets (e.g., exclusive AV systems)
  • Designer apparel and accessories
  • Paintings and collectibles

As per government intent, these are typically non-essential, lifestyle-driven purchases, often indicative of higher disposable incomes and wealth.

Threshold Limit and Rate

ParticularsApplicability
Threshold for TCSSale consideration > ₹10,00,000
Rate of TCS1% on entire amount exceeding ₹10 lakh
PAN/Aadhaar furnished by buyerTCS at 1%
PAN/Aadhaar not furnishedHigher TCS rate under Section 206CC/206CCA may apply, possibly up to 5%

Effective Date and Operational Aspects

  • Effective from: Likely FY 2025-26 (confirmation awaited through CBDT circular or Finance Act)
  • TCS Liability: Arises at the time of receipt of consideration, not at the time of sale/invoice.
  • Applicable per buyer per financial year (i.e., aggregate purchases by a buyer from a seller exceeding ₹10 lakh trigger TCS).

Who Is Liable to Collect TCS?

Only those sellers who:

  • Are engaged in sale of goods, including luxury goods;
  • Had a turnover exceeding ₹10 crore in the preceding financial year;
  • Are receiving sale consideration from a resident buyer exceeding ₹10 lakh in aggregate per year.

Example: If a luxury watch dealer with FY 2024-25 turnover of ₹12 crore sells a ₹15 lakh timepiece to a resident buyer in FY 2025-26, the dealer must collect 1% TCS on ₹15 lakh, i.e., ₹15,000.

Exceptions and Exclusions

  • TCS is not applicable if the buyer is:
    • A government body
    • An embassy/consulate
    • A local authority
    • Engaged in importing the goods (TCS on imports governed separately)
  • Goods exported out of India are exempted.
  • Inter-branch or stock transfers are not treated as sales and hence not liable for TCS.

Implications for Buyers and Sellers

For Sellers:

  • Need to update accounting and billing systems to auto-trigger TCS post ₹10 lakh threshold.
  • Require timely TCS payment and quarterly Form 27EQ filings.
  • Must issue TCS certificates (Form 27D) to buyers.
  • Liability to report under TDS/TCS reconciliation in Form 26Q.

For Buyers:

  • The TCS collected is not an additional tax, but a tax credit available under Form 26AS, which can be claimed in the income tax return.
  • However, the TCS may lead to working capital blockage and advance tax outflow, especially for high-value purchases.
  • Non-filers and those without PAN/Aadhaar may suffer higher TCS deduction.

Compliance Mechanism

  • TCS to be deposited within 7 days of the next month in which collection is made.
  • Reporting through TCS returns (Form 27EQ) on a quarterly basis.
  • TCS certificate (Form 27D) must be issued to buyer within 15 days from the due date of filing Form 27EQ.

Strategic Impact and Government Rationale

The move aligns with the Government’s objectives of:

  • Curbing black money in high-value cash transactions.
  • Tracking unreported wealth accumulation and spending patterns.
  • Enhancing the scope of data analytics and compliance through linkage with Form 26AS and AIS (Annual Information Statement).
  • Encouraging voluntary disclosure of income and assets.

Recent Trends and Updates

  • Budget 2023 and 2024 both reinforced digital trail monitoring, with increased reliance on TDS/TCS mechanisms for high-value economic activity.
  • The TCS rate was increased in line with global practices to prevent leakages in the taxation chain.
  • The AIS (Annual Information Statement) now prominently captures high-value purchases—automatically flagging luxury spends.

Conclusion

The imposition of 1% TCS on luxury goods is a strategic, compliance-oriented step by the Indian tax authorities to bring high-spend segments under tax surveillance. While the burden appears administrative rather than financial (since it is creditable), it will push for more transparency in luxury markets, streamline reporting, and build a more robust tax audit trail.

As Chartered Accountants, it becomes essential to guide clients—both businesses and HNIs—on record-keeping, compliance timelines, tax credit utilization, and impact assessment.

✅ Buyer/Seller FAQ Sheet:

TCS on Luxury Goods (Above ₹10 Lakhs) – Buyer & Seller FAQ

QuestionAnswer
What triggers the 1% TCS?Sale consideration of luxury goods exceeding ₹10 lakh in a financial year per buyer.
Who has to collect TCS?Sellers with turnover > ₹10 Cr in preceding FY.
What is the TCS rate?1% of sale value exceeding ₹10 lakh.
Is it applicable on all goods?Only luxury goods such as high-end cars, watches, jewellery, etc.
Is the TCS refundable?It is not a tax but an advance tax credit; claimable in ITR.
What if I don’t have PAN/Aadhaar?Higher TCS rate up to 5% may apply under Sec 206CC/206CCA.
What about multiple purchases under ₹10L?Aggregated per buyer per year. Once it crosses ₹10L, TCS applies.
How do I report TCS collected?Via quarterly Form 27EQ and issuance of Form 27D.
What if I buy in cash?Still liable for TCS; also subject to Sec 269ST cash limits.
When is TCS deposited by seller?By 7th of next month after collection.

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