Luxury tax: Handbags to horses - list of goods subject to the 1% TCS

In a move aimed at tightening oversight of high-end consumer spending, the Income Tax Department has issued new guidelines mandating a 1 percent Tax Collected at Source (TCS) on purchases of luxury goods exceeding ₹10 lakh. The measure, which came into effect on April 22, is part of a broader initiative to bolster income traceability and reduce tax evasion.

The provision falls under Section 206C(1F) of the Income Tax Act and marks an expansion of the TCS regime, which previously applied primarily to the sale of motor vehicles above the same threshold. Now, a wider array of luxury items—including fine watches, antiques, yachts, and designer apparel—are within the tax net.

According to the Central Board of Direct Taxes (CBDT), the revised rules also amend Form 27EQ, which sellers must now use to report the collection of TCS. The tax must be collected at the time of payment and linked to the buyer’s Permanent Account Number (PAN). The deduction will be reflected in the buyer’s Form 26AS and may be claimed as a credit when filing annual income tax returns. Buyers with no tax liability will be eligible for a refund.

The updated list of goods subject to the 1 percent TCS includes:

Wristwatches

Antiques, paintings, and sculptures

Collectibles such as coins and stamps

Watercraft and aircraft, including yachts, helicopters, rowing boats, and canoes

Sunglasses

Handbags and purses

Footwear

Sportswear and specialized gear, including golf kits and ski equipment

Home theatre systems

Horses intended for racing or polo

The measure was first proposed in the Union Budget and is not intended to generate additional revenue, according to government officials. Rather, it is seen as a compliance tool designed to improve financial transparency and discourage under-reporting of income.

Experts have noted that the new requirements are likely to increase the compliance burden on sellers, who must now ensure proper tax collection and reporting. Buyers, too, may encounter more rigorous Know Your Customer (KYC) checks and documentation requirements when making large discretionary purchases.

A growing list of countries are seeking to bring greater scrutiny to luxury consumption in the digital age, an effort that tax authorities argue is crucial in an increasingly cashless and interconnected economy.