After nearly nine months of anxious waiting in boardrooms and automobile showrooms alike, the Central Board of Direct Taxes (CBDT) has formally operationalised the 1 per cent Tax Collected at Source (TCS) on the purchase of designated luxury goods costing more than ₹10 lakh. The measure, announced in the Union Budget 2024 as part of the new income‑tax regime, is now in force from 22 April 2025—the date of its publication in the Official Gazette. The Economic Times
What the notification says
Invoking clause (ii) of sub‑section (1F) of section 206C of the Income‑tax Act, 1961, the notification directs every seller of the specified items to collect 1 % of the sale consideration as TCS at the time of sale. The covered list runs far beyond the headline grabbers of cars, jewellery and luxury watches. It includes premium handbags, footwear, yachts, private aircraft, fine art, designer apparel and high‑end electronic gadgets, provided each individual item exceeds the ₹10 lakh threshold. Tax UpdatesStudy Cafe
Why the government is doing this
Officials in North Block frame the levy as a compliance‑nudge rather than a revenue‑spinner. Because TCS is linked to a buyer’s PAN and automatically reflected in Form 26AS, it strengthens the audit trail for high‑value consumption. “The idea is simple: if someone can spend ₹40 lakh on a sedan or a diamond necklace, the tax department should not be in the dark about their real spending power,” a senior CBDT official told The Economic Times on condition of anonymity. The Economic Times
Tax professionals agree. “Unlike an outright increase in GST or import duty, a 1 % TCS does not change the retail price materially, but it does force both buyer and seller to stay on the grid,” explains CA Pratibha Goyal of StudyCafe. Study Cafe
Who bears the cash‑flow pain?
Although the tax is ultimately credited to the buyer’s income‑tax ledger (and can be claimed as credit while filing returns), the cash outgo happens up‑front. Luxury‑car dealers say they now have to tweak billing software to collect the additional amount and remit it within the statutory ten‑day window, failing which interest at 1 % per month will apply. “For a ₹70 lakh SUV, the TCS component is ₹70,000—small relative to the car price but big enough to make the customer notice,” says the sales head of a German marque in Mumbai.
Jewellers expect a similar behavioural nudge. “High‑net‑worth buyers may bundle multiple pieces into one invoice to cross the limit deliberately and get credit for the full amount,” predicts Nainit Digesh Savla, partner at ND Savla & Associates. The Economic Times
Carve‑outs and open questions
The circular clarifies that the threshold is per item, not per invoice. Thus, two watches worth ₹6 lakh each bought together escape TCS, but a single watch tagged at ₹12 lakh attracts it. Gifts that are later exchanged for cash or vouchers also come under the scanner. However, industry bodies want more guidance on:
- Returns & cancellations—How to reverse TCS if a customer cancels within the cooling‑off period?
- Demo cars & display pieces—Whether showroom inventory later sold as “used” still counts as a new luxury purchase?
- Overlap with existing TCS on overseas tour packages—Can a watch bought abroad and re‑imported be double‑taxed?
CBDT is expected to issue a frequently‑asked‑questions (FAQ) document before the June advance‑tax deadline.
Chronology of the rule
| Date | Event |
|---|---|
| 10 July 2024 | Finance Minister announces 1 % TCS on luxury goods in Budget speech. |
| 1 Jan 2025 | Original target date for rollout—missed due to stakeholder consultations. |
| 22 Apr 2025 | Notification No. 35/2025 published in Gazette; rule takes effect immediately. |
Impact on market sentiment
Shares of listed luxury‑retail chains and premium auto distributors slipped 0.5‑1 % on Wednesday afternoon as traders priced in marginal working‑capital pressure. Analysts at Motilal Oswal call the impact “earnings‑neutral but sentimentally negative,” noting the levy is far lighter than the 20 % TCS slapped on foreign remittances last year.
What consumers should do
- Budget for the extra 1 %—even if you eventually claim it back.
- Keep PAN details handy—sellers must report the correct PAN to deposit TCS.
- Track Form 26AS—verify that the credit reflects; raise Form 17A discrepancy if not.
The big picture
With this move, the government hopes to widen the tax net without widening tax rates, in line with its “trust but verify” mantra. Whether the new rule merely nudges the rich or drives spending offshore will become clear once sales data for the festive season rolls in. For now, anyone eyeing a seven‑figure splurge must factor in the tiny—but telling—TCS tag.
