Purchases of luxury goods such as Gucci handbags, Birkin bags, and Patek Philippe watches costing over Rs 10 lakh will be subject to Tax Collected at Source (TCS) starting January 1, 2025. The Budget memorandum reveals that the government plans to include high-net-worth individuals’ expenditures on these items under TCS regulations.
According to the memorandum, “There has been a noticeable increase in luxury goods expenditure among high-net-worth individuals. To better track such spending and expand the tax base, it is proposed to amend sub-section (1F) of section 206C. This amendment will levy Tax Collected at Source (TCS) on any goods valued over ten lakh rupees, as specified by the Central Government. These goods will primarily include luxury items.”
Shalini Jain, Tax Partner, People Advisory Services, EY India says, “Government is proposing to impose a Tax Collected at Source (TCS) on luxury goods purchases over Rs 10 lakh to widen the tax base given the increase in spend on luxury items by HNIs. The list to luxury goods is yet to be notified by the government.”
The proposed Tax Collected at Source (TCS) on luxury goods aims to broaden the tax base. Currently, Sub-section 1F of Section 206C mandates that sellers collect a 1% TCS on the sale of motor vehicles valued over Rs 10 lakh at the time of payment.
Starting October 1, 2023, the TCS rate on foreign travel and foreign remittances will increase from 5% to 20%, with some exceptions. Additionally, international credit card payments will now fall under the Liberalized Remittance Scheme (LRS) and be subject to TCS.
Under current laws, all overseas money transfers (such as bank transfers, foreign exchange, and forex card loads) made through the Liberalized Remittance Scheme (LRS) will attract a 20% Tax Collected at Source (TCS) if the total amount exceeds Rs 7 lakh in a financial year. Transactions below Rs 7 lakh are generally not subject to TCS, except in specific cases. Medical and educational remittances are exempt from this TCS.
Under LRS, there will be no TCS on foreign remittances below Rs 7 lakh spent for educational expenses. If remittance above Rs 7 lakh spent for foreign education is through a loan obtained from an approved financial institution, it will attract TCS at 0.5%. Remittances above Rs 7 lakh spent for educational purposes from other sources will attract a TCS of 5%.
Similarly, any outward remittance for medical treatment will attract TCS at 5% if the threshold crosses Rs 7 lakh.
Do note that TCS is applicable at a concessional rate if you spend money for education or medical purposes abroad.
For an overseas tour package, a TCS of 5% is applicable if the amount is up to Rs 7 Lakh. Beyond this limit, a TCS of 20% is levied on a foreign tour package