TCS @ 1% Levied on Sale of Luxury Goods w.e.f. 22nd April, 2025

So far, Tax Collected at Source (“TCS”) on the Sale of Motor vehicles is levied at the rate of 1% under Section 206C(1F) of the Income Tax Act, 1961 (“The Act”). The Sole objective of levying such TCS is to have the information about high-value transactions carried out by the person during the year.

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While presenting the Union Budget in July 2024, Hon’ble Finance Minister announced that the TCS shall be levied on the sale of luxury Goods from 1st January, 2025. However, no notification was issued to such effect till March 2025. Now, in line with the announcement of the Hon'ble Finance Minister, the CBDT issued 2 notifications and one Frequently Asked Questions (FAQs) on the levy on TCS on luxury Goods.

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The following are the details of TCS applicability on Luxury Goods:

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1. Provisions of TCS on the Sale of Luxury Items so far

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• As per Section 206C(1F) of the Act, TCS is applicable on the sale motor vehicle of value exceeding INR 10 Lakhs. 
• However, as per Section 206C(1F)(ii) of the Act, the Government has the power to specify other goods on which TCS may be levied.

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2. List of New Luxury Items for which TCS is applicable

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As per Notification No. 36/2025 dated 22nd April, 2025, the TCS shall be levied on the sale of the following luxury items:

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1. wrist watch
2. Art pieces such as antiques, paintings, and sculptures
3. Collectibles such as coins, stamps
4. Yacht, rowing boat, canoe, helicopter
5. Sunglasses
6. Any bag, such as a  handbag, purse
7. A pair of shoes
8. Sportswear and equipment such as golf kit, ski wear
9. Home theatre system
10. Horse for horse racing in race clubs and horse for polo

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Read also: Union Budget 2025 | Key Takeaways for Personal Taxation

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3. What is the rate and threshold limit of TCS applicable on the sale of Luxury Items?

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• TCS shall be collected by the seller at the rate of 1% if the sale value of above mentioned items exceeds INR 10 Lakhs. 
• The threshold limit is to be checked on a single item. E.g., if any person is buying a single wrist watch of INR 30 Lakhs, then the seller shall collect the TCS of INR 30,000 on the sale of such wrist watch.

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4. What is the date of applicability of such TCS provisions?

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TCS provisions on sale of luxury items shall come into effect from the date of publication of the notification in the official gazette, i.e., 22nd April, 2025

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5. What shall be the point of the collection of TCS?

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The Seller shall collect the TCS at the time of sale of luxury items if the value exceeds the threshold limit. The seller shall collect the PAN of the buyer at the time of sale for filing the TCS return.

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6. What is the purpose of the collection of TCS on Luxury Items?

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Apart from Incomes, The Government now intends to collect information about expenditures as well. Therefore, through such TCS, the Government shall get the information about the high-value expenditure incurred by a person. If the Income declared in ITR does not match the expenditure incurred by the Assessee, then the department may ask for a source of funds for such high-value transactions.

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7. Whether the Buyer shall be entitled to get the Credit of such TCS?

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• Similar to TDS deducted, such TCS shall also start reflecting in Form 26AS of the buyer after filing of the TCS return by the seller.
• The Buyer can claim the credit of such TCS collected from its income tax liability.
• If the TCS collected is more than the Income Tax liability, then the buyer shall be entitled to get the refund of such excess TCS.
• Buyers should collect the TCS certificate from the seller once such TCS amount is deposited and a return is filed for such TCS amount.

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8. Conclusion

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The person needs to be more vigilant while filing their return of income and make sure that the income declared in the ITR is in sync with high-value expenditure reflected on the income tax portal. Any mismatch can lead to income tax notices requiring the person to explain the source of such expenditure.

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