The ultra-rich and fashion aficionados looking to expand their luxe collection must keep in mind the 1 per cent tax that the seller will collect on behalf of the government on the next purchase of a Patek Philippe watch or a Hermes Birkin bag.

The Central Board of Direct Taxes on April 22 has notified a list of 10 items where, if their value exceeds ₹10 lakh, there will be a 1 per cent tax collected at source. The list includes wrist watches, art pieces such as antiques, paintings, sculptures, collectables like coins and stamps, sunglasses, handbags and purses, shoes, sportwear and equipment such as golf kits, home theatre systems and horses for racing and polo.

TCS is collected from the buyer at the time of sale of specified goods and can be adjusted against the tax liability of the purchaser at the time of filing of IT returns. TCS helps trace high-value spending as PAN details have to be submitted at the time of purchase.

The 1 per cent TCS comes into effect from April 22. Already, under Section 206C(1F) of the IT Act, introduced as part of the Budget presented in July, 2024, TCS of 1 per cent rate is being levied on motor vehicles costing above ₹10 lakh effective January 1, 2025.

The section also mandates a 1 per cent TCS on any other goods, as may be specified by the government by notification in the official gazette. These items have now been specified.

Nangia Andersen LLP tax partner Sandeep Jhunjhunwala said this notification operationalises the government’s intent to enhance monitoring of high-value discretionary expenditure and strengthen the audit trail in the luxury goods segment.

It reflects a broader policy objective of expanding the tax base and promoting greater financial transparency.

“Sellers will now be required to ensure timely compliance with TCS provisions, while buyers of notified luxury goods may experience enhanced KYC requirements and documentation at the time of purchase. Although the luxury goods sector may undergo some transitional challenges, this measure is expected to promote formalisation and improved regulatory oversight over time,” Jhunjhunwala said.

AKM Global tax partner Amit Maheshwari said that by bringing high-value items into the TCS framework with a 1 per cent rate, the government is widening the tax net beyond just motor vehicles. “This will enhance the traceability of luxury spending,” he said.