TCS on Luxury Goods

December 05, 2025

TCS (Tax Collected at Source) is a tax that a seller collects from the buyer at the time of sale.

WHY

• Helps in tracking high-value transactions.
• Ensures taxes are collected efficiently.
• Enables the Government to monitor the flow of money in the luxury goods market, which is often prone to tax evasion.
• Acts as a barrier against unreported income and promotes transparency in transactions.

Applicability of TCS on Luxury Goodss

As per Section 206C(1F) of the Income Tax Act, 1961:
A TCS of 1% applies if the value of the specific goods notified, exceeds Rs 10 Lakhs. w.e.f 22nd April 2025
CBDT Notification No. 36/2025

What are the implications for Buyers & Sellers?

BUYERS

• Additional Cash Outflow: Buyers will need to pay an extra 1% on the purchase price of luxury goods exceeding ₹10 lakh. For example, if you buy a luxury watch for ₹15 lakh, you will pay an additional ₹15,000 as TCS.
• Income Tax Return (ITR) Filing: Buyers can claim the TCS amount as a tax credit when filing their income tax returns. This can help reduce their overall tax liability.
• Increased Transparency: The TCS collected will be linked to the buyer's PAN, making it easier for the tax authorities to track high-value transactions. This move aims to curb unaccounted income and ensure that luxury spending aligns with declared income.
• Documentation:Buyers must ensure they receive a TCS certificate from the seller, which will act as evidence for payment of tax.
• Potential Scrutiny: High-value purchases will now be more visible to the tax authorities. If there is a significant mismatch between your spending and declared income, it could lead to scrutiny or inquiries from the tax department

SELLERS

• Provisions:Starting April 22, 2025, sellers of luxury goods priced above ₹10 lakh must follow new TCS rules. The TCS rate is 1% of the total sale price, including GST and other charges. Sellers must collect this tax during the sale and remit it to the government.
• Returns and Payments: The Monthly TCS payment is due by the 7th of the following month. For instance, TCS collected in April must be paid by May 7th.
  Form 27EQ is the Quarterly return for TCS, filed by the 15th of the month following the end of each quarter (e.g., the April-June quarter is due by July 15).
• Consequences for Late Filing:
  • Late Fee (Section 234E):If TCS returns are filed late, a fee of ₹200 per day will be charged, up to the total TCS amount.
  • Penalty (Section 271H):A penalty between ₹10,000 and ₹1,00,000 can be imposed for returns filed over a year late or with incorrect details.
  • Additional Consequences:Failure to deposit TCS on time may result in imprisonment from three months to seven years and a fine.

What are the long-term effects of TCS on luxury brands

• Market Dynamics:The additional cash outflow due to TCS might lead to a shift in consumer behaviour, potentially reducing the demand for luxury goods. Brands may need to adjust their pricing strategies or offer more value-added services.
• Operational Adjustments: Luxury brands must adapt to TCS regulations by updating billing systems, training staff, and ensuring proper documentation. Although this may initially raise operational costs, it is essential for compliance.
• Grey Market Impact:The grey market for luxury goods might expand as consumers seek to avoid the additional TCS. Brands need to enhance anti-counterfeiting measures and educate consumers on the benefits of official channels.

What strategies can mitigate the impact of TCS?

For Sellers:

• System Integration & Staff Training: Update billing and ERP systems to automate TCS collection and ensure compliance with the new regulations. Train finance, accounts, and sales teams on the new TCS requirements and procedures to ensure smooth implementation.
• Customer Communication: Clearly communicate the TCS implications to customers, emphasizing that it is an advance tax and can be claimed as a credit.
• Promotional Offers:Introduce promotional offers or discounts to offset the additional cash outflow of TCS and maintain customer interest.
• Enhanced Services:Offer value-added services, such as extended warranties or exclusive memberships, to enhance the perceived value of purchases.

For Buyers:

• Tax Planning:Include TCS payments in your tax planning so that you can use the tax credit properly while calculating Advance Tax and filing your ITR.
• Documentation:Keep all invoices and TCS certificates safely to facilitate the claiming of tax credits.
• PAN Sharing:Ensure that the PAN is shared with the seller to avoid higher TCS rates and ensure proper credit.
• Budgeting:Factor in the additional 1% TCS when budgeting for luxury purchases to avoid any surprises.

TCS Computation

CRUX:

• TCS is applicable only if the Value of goods exceed 10 Lakhs including GST.
• TCS is charged on Total invoice value.
• TCS of 5% is charged if no PAN is provided to the seller.

In summary, the introduction of Tax Collected at Source (TCS) on luxury goods is a significant measure to enhance transparency and curb tax evasion in high-value transactions. Buyers should incorporate TCS payments into their tax planning and maintain proper documentation to claim tax credits, while sellers must ensure compliance with the new regulations and communicate the implications to their customers. By adopting strategic measures, both buyers and sellers can effectively navigate the new TCS regulations and minimize their impact on luxury transactions.