The income tax department’s new rule on tax collected at source (TCS) under which a levy of 1% would be effective on luxury goods priced at Rs 10 lakh or more is expected to help the tax man widen the tax base by tracking luxury spends rather than just an immediate revenue collection tool.
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The new rule notified by the Central Board of Direct Taxes with effect from April 22, 2025 will bring into the ambit of the 1% TCS a number of specified goods that cost over Rs 10 lakh including wrist watches, handbags, sunglasses, shoes and sportswear, art objects including paintings and sculptures, yachts, home theatre systems as well as horses for intended for racing or polo.
Sandeep Jhunjhunwala, Tax Partner at Nangia Andersen LLP pointed out that the notification operationalises the government's intent to enhance monitoring of high-value discretionary expenditure and strengthen the audit trail in the luxury goods segment.
“It reflects a broader policy objective of expanding the tax base and promoting greater financial transparency. Sellers will now be required to ensure timely compliance with TCS provisions, while buyers of notified luxury goods, may experience enhanced KYC requirements and documentation at the time of purchase,” he said.
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Although the luxury goods sector may undergo some transitional challenges, this measure is expected to promote formalisation and improved regulatory oversight over time.
Amit Maheshwari, Tax Partner, AKM Global said that the notification expands the scope of TCS to include luxury goods and collectibles and will enhance the traceability of luxury spending. “By bringing high-value items like wristwatches, art pieces, antiques, yachts, and collectibles (above Rs 10 lakh) into the TCS framework with a 1% rate, the government is widening the tax net beyond just motor vehicles,” he said.
HNIs and luxury spending on the rise:
To be sure, in recent years, high net individuals in India as well as high end luxury shopping in the country have been on the rise.
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Individuals reporting income of Rs 1 crore and more in their income tax returns have been on the rise. In FY25, over 313,000 individuals filed returns reporting income above Rs 1 crore. As per official data, over 297,000 individuals filed income tax returns for Rs 1 crore to Rs 5 crore by March 31, 2025, and another 16,797 individuals filed returns for income between Rs 5 crore to Rs 10 crore. Compare this to a decade ago, when in FY15 just 51,102 individuals reported income of Rs 1 crore and more.
Similarly, luxury spending in India has also been on the rise with not just the high net-worth individuals but also upper middle-income groups splurging on premium goods such as handbags, watches, shoes and sunglasses. As per a recent report by Bain & Co, India’s luxury market is set to rise to $85 billion by 2030 with the personal luxury goods segment at $ 4 billion.
Tax measures:
Previously, the Union Budget 2024-25 had brought in an amendment under which sellers of motor vehicles priced at Rs 10 lakh or more any other goods specified by the central government, would be expected to collect 1% TCS from the buyer.
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The income tax department also keeps a tab on several high value transactions by individuals such as purchase of property, jewellery and credit card spends. It is also using Artificial Intelligence and data analytics to keep a closer tab on spending by individuals.
Further, the Statement of Financial Transaction (SFT) that financial institutions and banks and mutual funds provide to the income tax department provide details of high-value transactions, payment of dividend, payment of interest and transactions in listed securities and units of mutual funds of taxpayers.
