TCS on Luxury Goods and Collectibles

TCS on Luxury Goods and Collectibles: A Comprehensive Analysis for Buyers and Sellers

The Central Board of Direct Taxes (CBDT) has introduced a significant update under Section 206C(1F) of the Income-tax Act, 1961, which brings high-value luxury goods and collectibles under the ambit of Tax Collected at Source (TCS). This amendment, effective from April 22, 2025, mandates a 1% TCS on transactions exceeding ₹10 lakh involving specified luxury items.
As professionals in tax compliance and legal advisory, Chartered Accountants and Company Secretaries must examine the practical implications of this change for their clients, both sellers and buyers.

What Has Changed?

The revised provision makes it obligatory for sellers of specified luxury goods to collect 1% TCS at the time of receipt of payment if the consideration received from the buyer exceeds ₹10 lakh in a single transaction.
This change applies regardless of whether the payment is made in a lump sum or installments, and whether it is received via cash, cheque, online transfer, or any other mode.

Specified Goods Now Covered Under Section 206C(1F)

The amendment specifically lists the following goods:

Luxury wristwatches
Artwork (including sculptures, paintings, and antiques)
Rare collectibles (e.g., stamps, coins)
High-end handbags & purses
Premium sunglasses
Luxury footwear
Sports gear (e.g., golf kits, skiing equipment)
Yachts, boats, canoes, and helicopters
Advanced home theatre systems
Race or polo horses

These are typically non-essential and high-value assets, often acquired by High-Net-Worth Individuals (HNWIs). The government’s objective is to track capital outflows and ensure better income-to-expenditure matching.

Seller's Obligations: Compliance Checklist

If you’re a seller dealing in these luxury goods, you are legally bound to:

Collect TCS @ 1% of the consideration value from the buyer at the time of receiving payment.
Deposit the TCS with the government using Challan 281 within the 7th of the following month.
File Quarterly TCS Returns in Form 27EQ within the specified due dates.
Issue TCS Certificate (Form 27D) to the buyer within 15 days from the due date of filing Form 27EQ.
Maintain records of each high-value transaction for verification and audit purposes.

Tip for Professionals: Use automation tools or ERP integrations to flag high-value sales and generate real-time TCS challans.

Buyer’s Perspective: What Should You Know?

Buyers purchasing such items should keep in mind:

PAN is mandatory to ensure TCS is charged at 1%. Otherwise, a higher rate (typically 5%) may apply under Section 206CC.
The TCS amount will reflect in Form 26AS and can be claimed as a credit against the final tax liability while filing the ITR.
Maintain a clear paper trail of the purchase, including the invoice, payment proof, and TCS certificate for future scrutiny.

Broader Objective of the Amendment

The government’s intent behind this move is:

To widen the tax base by identifying individuals with high discretionary spending.
To curb tax evasion and under-reporting of income by matching such purchases against the buyer’s declared income.
To enhance transparency in luxury markets, which are often cash-intensive and under-reported.

This change also aligns with the broader Digital India and Faceless Taxation initiatives, which aim to build an ecosystem of transparent, traceable, and compliant financial transactions.

Impact on Financial Reporting & Audit

From a CA/CS standpoint:

For corporate sellers, the TCS collected must be disclosed as a liability until remitted to the government.
In audit reports, especially under Form 3CD Clause 34, ensure disclosure of TCS compliance status.
Non-compliance may lead to penalties under Section 271CA, and interest liabilities under Section 206C(7).

Recommendations for Clients

🔹 For Sellers:

Update billing software to automatically compute and collect TCS for qualifying items.
Train accounting staff to handle TCS deposits and returns diligently.
Maintain robust documentation and audit trail for each transaction.
Consult with your CA regularly to stay compliant with TCS and GST overlaps.

🔹 For Buyers:

Always furnish PAN to avoid higher TCS deductions.
Cross-verify TCS entries in Form 26AS before filing your ITR.
Consider timing your purchases to manage year-end tax liability better.