Tax to be Collected on Luxury Goods Above Rs. 10 Lakh Starting in 2025

Indulging in luxury will soon come with an added cost. Starting January 1, 2025, acquiring opulent treasures like Gucci handbags, Birkin bags, and Patek Philippe watches will attract a Tax Collected at Source (TCS) if their value exceeds Rs 10 lakh. This new directive, introduced in the recent Budget memorandum, aims to bring the lavish expenditures of high-net-worth individuals (HNIs) under closer scrutiny.

The memorandum highlights, “There has been a notable increase in luxury spending by high-net-worth individuals. To track these expenses accurately and broaden the tax net, it is proposed to amend sub-section (1F) of section 206C to levy TCS on any goods valued over ten lakh rupees, as specified by the Central Government. Such goods will be classified as luxury items.”

Shalini Jain, Tax Partner at People Advisory Services, EY India, elaborates, “The government’s proposal to impose TCS on luxury goods purchases over Rs 10 lakh aims to expand the tax base in response to increased luxury spending by HNIs. The specific list of luxury goods is yet to be notified.”

Currently, Sub-section 1F of Section 206C requires sellers to collect a 1% TCS from buyers for motor vehicles priced above Rs 10 lakh. This new proposal extends TCS to other luxury goods, reinforcing the government’s dedication to monitoring high-value transactions.

In addition to luxury goods, significant changes have been made to TCS on foreign travel and remittances. As of October 1, 2023, the TCS rate on foreign travel and remittances increased to 20% from 5%, with certain exceptions. International credit card payments now fall under the Liberalised Remittance Scheme (LRS), attracting TCS.

Under current regulations, all overseas outward remittances, including bank transfers, foreign exchange, and forex card loading (excluding medical and educational purposes), incur a 20% TCS if the amount exceeds Rs 7 lakh in a financial year. Transactions below this threshold are exempt from TCS, with some exceptions.

For educational expenses, foreign remittances below Rs 7 lakh will not incur TCS. Remittances above Rs 7 lakh for foreign education through an approved financial institution loan attract a TCS of 0.5%, while other sources incur a 5% TCS. Similarly, remittances for medical treatment above Rs 7 lakh are subject to a 5% TCS.

For overseas tour packages, a TCS of 5% applies if the amount is up to Rs 7 lakh, and beyond this limit, a 20% TCS is levied. These measures reflect the government’s efforts to enhance tax compliance and transparency in high-value transactions, ensuring that the luxurious lifestyle enjoyed by HNIs contributes appropriately to the nation’s tax base.