Taxing High-Value Purchases: Government Categorises Yachts, Horses And More As ‘Luxury Goods’

The government expanded the scope of tax on high-value purchases to track luxury spending and ensure that transactions above Rs 10 lakh are reported in income tax returns. The responsibility to collect the tax lies with the seller.

The centre notified a range of luxury items under the ambit of tax collected at source in a move aimed at widening the tax base and capturing high-end discretionary spending, according to a notification on Tuesday. Sellers will be required to collect a 1% TCS from buyers on retail transactions involving luxury goods exceeding Rs 10 lakh effective on Tuesday.

Among the items now included are watches, art pieces, antiques, yachts, handbags, high-end sportswear, horses, home theatre systems, ski-wear, golf kits, and even helicopters.

The list followed the July 2024 budget proposal to impose on luxury goods purchases of over Rs 10 lakh, given the increase in spending on luxury items by HNIs. However, the government hadn’t notified the nature of goods.

The list is expected to provide clarity on what qualifies as ‘luxury goods’ for taxation.

The government has issued a notification under Section 206C (1F) of the Income Tax Act dealing with TCS on retail purchases.

By taxing such purchases, the government aims to increase oversight on high-value transactions. The move is expected to not only bring more individuals into the formal tax system but also curb the use of unaccounted money in the luxury market.

Sellers dealing in these specified goods will now be responsible for collecting 1% of the sale value from the buyer at the time of purchase, provided the total exceeds the Rs 10 lakh threshold.

The February budget proposed to rationalise TCS. The threshold to collect TCS on remittances under RBI's liberalised remittance scheme is proposed to be raised to Rs 10 lakh from Rs 7 lakh.

So far, all overseas outward remittances under the Liberalised Remittance Scheme (LRS)—including bank transfers, foreign exchange purchases, and forex card loading—are subject to a 20% Tax Collected at Source if the total amount exceeds Rs 7 lakh in a financial year. However, remittances for medical or educational purposes are exempt from this rule. TCS is not applicable for transactions below Rs 7 lakh, except in specific cases.