I-T department expands luxury goods list for 1% TCS: here’s what’s included, check details

The Income Tax Department has expanded the scope of Tax Collected at Source (TCS) to encompass a wider array of luxury goods priced over Rs 10 lakh. Implemented from April 22, these goods now attract a 1% TCS, a measure intended to improve income traceability and minimise tax evasion. This regulatory expansion follows the fiscal policy introduced in the recent Budget, aiming to extend the taxation net beyond motor vehicles to include high-end discretionary purchases. 

The Central Board of Direct Taxes (CBDT) has outlined ten categories that will be subject to the revised TCS rules. These include prestigious items such as wristwatches, handbags, sunglasses, and art pieces.

The newly expanded list under Section 206C(1F) of the Income Tax Act features luxury items including racing horses, yachts, helicopters, and sports equipment like golf kits and ski gear, a report in the Times of India stated. These products will now require buyers to pay a 1% TCS at the point of sale, similar to the existing rule for vehicles exceeding the Rs 10 lakh threshold. 

The list of luxury goods includes:

Wrist watches

Antiques, paintings, and sculptures

Collectibles like coins and stamps

Yachts, helicopters, rowing boats, and canoes

Sunglasses

Handbags and purses

Shoes

Sportswear and equipment like golf kits, ski gear

Home theatre systems

Horses for racing or polo

How will TCS work

When making a purchase, sellers typically collect Tax Collected at Source (TCS) from the buyer. This TCS amount is calculated at 1% of the sale price for items valued above Rs 10 lakh. The TCS collected is later adjusted against your total income tax liability when you file your returns. It is important to provide your PAN details at the time of the transaction to ensure compliance with the TCS regulations.

For instance, if you purchase a luxury item worth Rs 12 lakh, the seller will collect Rs 12,000 (1% TCS) from you. This amount will then be credited against your overall tax obligation when you file your income tax return.

What sellers and buyers should note

Sellers are now mandated to collect this 1% TCS from buyers at the time of purchase and link it to the buyer's Permanent Account Number (PAN). The collected tax will appear in the buyer's Form 26AS, enabling them to claim it as a credit when filing their income tax returns. If buyers have no tax liability, the TCS amount will be refunded. The previous application of Form 27EQ, which was limited to motor vehicle sales above Rs 10 lakh, has now been broadened to include these high-value discretionary purchases, ensuring greater transparency and accountability in the financial system.

Implications for buyers

Increased KYC Requirements: Anticipate encountering additional Know Your Customer (KYC) requirements at luxury outlets.
Updated PAN Details: Make sure your Permanent Account Number (PAN) details are accurately updated.
TCS Reflected in Form 26AS: Take note that Tax Collected at Source (TCS) will be visible in your Form 26AS, which is your tax credit statement.
Keep Purchase Receipts for Tax Purposes: Remember to retain your purchase receipts for tax filing reference.

TCS rate

The TCS rate for luxury goods has been set at a standard 1% for trading activities, excluding manufacturing or processing purposes. The tax is collected by the seller at the point of sale, and different rates apply to other goods categories, such as timber wood and tendu leaves. For instance, the rate is 2.5% for timber wood obtained by non-forest lease methods and 5% for tendu leaves. This tiered taxation approach reflects the government's strategy to categorise various goods according to their market value and the nature of their use, ensuring a structured and fair taxation system.

The rate of taxation varies depending on the type of goods or transactions. Here are the rates for different categories:

Liquor of alcoholic nature intended for human consumption: 1%
Timber wood obtained under a forest lease: 2.5%
Tendu leaves: 5%
Timber wood obtained through methods other than a forest lease: 2.5%
Forest produce excluding Tendu leaves and timber: 2.5%
Scrap: 1%
Minerals such as lignite, coal, and iron ore: 1%
Purchase of Motor vehicle exceeding Rs.10 lakh: 1%
Parking lot, Toll Plaza, Mining, and Quarrying: 2%

The inclusion of luxury goods in TCS regulations is a strategic move by the government to curtail tax evasion, particularly in high-value transactions. By broadening the scope of TCS, the government seeks to integrate more individuals into the taxation system, thereby enhancing compliance and generating more accurate revenue data.