Direct Tax Alert

Direct Tax Alert - CBDT Notifies Luxury Goods for Levy of TCS Under Section 206C(1F) of the IT Act

BACKGROUND

Section 206C(1F) of the Income-tax Act, 1961 (IT Act) provides that a seller receiving any amount as consideration for the sale of a motor vehicle shall collect 1% of the sale consideration as income tax if the value exceeds INR 1mn. In order to track the expenditure on luxury goods while enhancing transparency and ensuring better tax compliance, the Finance (No. 2) Act, 2024 amended section 206C(1F) of the IT Act to provide that Tax Collected at Source (TCS) shall also be levied on other goods as may be notified by the Central Government in the Official Gazette.

In view of giving effect to the aforesaid amendments, recently, the Central Board of Direct Taxes (CBDT) has issued notifications¹specifying the list of luxury goods that will fall within the ambit of section 206C(1F) of the IT Act. Accordingly, subsequent amendments are also made in Form 27EQ². Additionally, the CBDT has provided clarifications on the amendments through a set of Frequently Asked Questions (FAQs)³. We, at BDO in India, have analysed and summarised the key aspects of the said Notifications and FAQs, and provided our comments on its impact hereunder:

Which specified luxury goods of value exceeding INR 1mn are subject to TCS under section 206C(1F) of the IT Act?

The following goods are notified under section 206C(1F) of the IT Act –

Wrist watches
Art pieces such as antiques, paintings, and sculptures
Collectibles such as coins and stamps
Yachts, rowing boats, canoes, and helicopters
Sunglasses
Bags such as handbags andpurses
Shoes
Sportswear and equipment such as golf kit and ski-wear
Home theatre systems
Horses for horse racing in race clubs and polo.

Will TCS be levied on the sale of a single item of the notified goods of value exceeding INR 1mn?

Yes, TCS will be levied on sale of a single item of the notified goods which are of the value exceeding INR 1mn.

What amendments have been made to Form 27EQ?

Form 27EQ has been amended to include the reporting of TCS on the aforesaid notified goods.

What will be the effective date of these Notifications?

These Notifications shall be effective from 22 April 2025 (i.e. date of publication).

BDO INDIA COMMENTS

These notifications aim to enhance compliance and traceability of high-value transactions involving luxury goods, thereby broadening the tax base and curbing tax evasion. This move is intended to ensure proper tracking of expenditures on luxury goods and in order to widen and deepen the tax net, particularly in light of the increase in expenditure on luxury goods by high-net-worth individuals (HNIs).

Accordingly, sellers dealing in the specified goods will be required to collect tax @ 1% at the time of sale if the transaction value exceeds INR 1mn. Further, such transactions must be accurately reported in the amended Form 27EQ for the relevant quarter. On the other hand, buyers may witness greater scrutiny on high-value purchases of the notified luxury goods. This is in line with the Central Government’s objective of improving tax transparency and monitoring expenditures on luxury goods more effectively.

¹Notification No. 35/2025 dated 22 April 2025
Notification No. 36/2025 dated 22 April 2025
²Form 27EQ is a quarterly statement of reporting TCS under section 206C of the IT Act.
³FAQs dated 23 April 2025