Income Tax Department Now Distinguishes Between Necessities and luxury goods:

The income Tax Department has introduced new measures aimed at tracking high-value consumer spending and ensuring tax compliance. One of the key changes includes the differentiation between essential and luxury items for the purpose of Tax Collected at Source.

Previously, a 1% TCS was applicable on the purchase of motor vehicles priced above ₹10 lakhs. This amount is collected by the dealer and deposited against the buyer’s Permanent Account Number (PAN), with the transaction reflected in their Form 26AS and Annual Information Statement (AIS).

Expanding on this, the department has now mandated a 1% TCS on the purchase of all luxury goods valued above ₹10 lakhs, with the exception of garments. This move is part of a broader strategy to monitor and record high-value discretionary spending.

As per CA Manish Kumar Sinha “The much-anticipated notification on TCS on luxury goods brings clarity on scope and thresholds and to track high ends goods consumer by department”. Effective April 22, 2025, the levy applies to notified products exceeding ₹10 lakh in value with tax applicable on the full transaction amount in excess of Rs 10 lakh.

If you plan to purchase any of the following items exceeding ₹10 lakhs in value, the seller is required to deduct 1% TCS and deposit it under your PAN:

- Wrist watches
- Art pieces such as antiques, paintings, and sculptures
- Collectibles including rare coins and stamps
- Yachts, canoes, rowing boats, and helicopters
- Sunglasses
- Handbags and Purses
- Footwear
- Sportswear and equipment, e.g., Golf kits and ski gear
- Home theatre systems
- Horses used for racing or polo

While sunglasses are often a necessity during summer, their prices can range widely from ₹100 to over ₹1 crore. Buyers are encouraged to assess their purchases to determine whether they fall under essential or luxury categories.

How Does TCS Work?

• Collected by the seller at the time of purchase
• Charged at 1% of the sale price (on items above Rs 10 lakh)
• Adjusted against your total income tax at the time of filing returns
• Requires PAN submission at the time of transaction TCS will be visible in your Form 26AS (tax credit statement)
• Keep purchase receipts for tax filing reference
Example: You need luxury golf kit of ₹ 15 lakhs. Seller will ask your PAN and collect additional ₹ 15,000 from you and will reflect in your 26AS and you will be eligible to claim as tax deduction at source in your income tax return.

Whether TCS will be levied on sale of a single item of the notified goods of value exceeding ten lakh rupees?

Ans. Yes, TCS will be levied on sale of a single item of the goods of the nature specified in the above table which is of the value exceeding ten lakh rupees.

When will the new provisions become effective?
Ans. The new provisions will become effective from the date of publication of notification i.e 22 April 2025.

Importantly, garments remain excluded from this provision, meaning you can purchase clothing of any value without incurring the 1% TCS.

Article is written by CA Manish Kumar Sinha.