The government’s proposal to impose a 20% tax on expenditures made abroad under the Liberalised Remittance Scheme, in case of amounts exceeding ₹7 lakh in a financial year from October 1, is likely to push the sale of luxury brands in India, experts said.
Covid had helped boost demand for luxury brands in India as international travel restrictions shifted sales to domestic stores. That is now sto get another boost due to narrowing of the price gap between foreign and local markets after accounting for the 20% tax collected at source (TCS), mall owners said.
“An Indian consumer earlier used to go abroad and shop in Dubai or London, but when the pandemic happened, many of those brands like Chanel or Hermes called their Indian consumers to do small events inside the store. There are customers who come for the first time to the brand’s store in India and realise the price difference is hardly 15%. Millennials also prefer luxury brands, leading to the growth,” said Pushpa Bector, senior executive director at DLF Retail, which operates premium malls across the Delhi-National Capital Region.
Global luxury brands are also bullish on the Indian market. Recently, Aditya Birla Fashion Retail partnered with French luxury department store chain Galeries Lafayette while Reliance Brands signed a deal to bring global luxury brands Valentino and Balenciaga to India.
“Every luxury brand is available in India so why should anybody go abroad for shopping. Travel should be experiential. Many of the brands at our luxury mall have reported triple growth in revenue since Covid and we expect that to continue,” said Uzma Irfan, director of Bengaluru-based Prestige Group, which operates the UB City mall that houses brands such as Louis Vuitton, Rolex, Rado and Jimmy Choo.
Experts said with the new rule, the difference in the price of a luxury product in India and abroad will reduce, prompting buyers to do the shopping in India.
“The prices in India will now be at par with the global prices, which will work in favour of the outlets here. Although there is an import duty, the brands usually keep the prices similar to ensure the buyer is buying at the home country store. The Indian shoppers will keep the ₹7 lakh limit for other purposes instead of buying goods that are available in India,” said Shriram PM Monga, who co-founded retail consultancy firm SRED.
As per a Bain & Co report, India’s luxury market is expected to grow 3.5 times the current size and reach $200 billion by 2030, propelled by a rising number of ultra-high-net-worth individuals (with net assets of $30 million or more), growing entrepreneurship, strong middle class, greater penetration of ecommerce and demand from tier-2 and -3 cities.
Tax experts have also called for a reduction in the overall tax on luxury goods to further boost sales.
India imposed a 28% GST, the highest rate under the tax system, on most luxury goods.
“This has resulted in making luxury goods expensive in India. GST on luxury leather goods is 28% and this is over and above the customs duty of 10-15%. Hence the average tax rate on luxury leather goods becomes around 40%. Till the time these are not pruned, the TCS of 20% may not yield the intended results,” said Vivek Jalan, partner, Tax Connect Advisory, a tax consultancy firm.
The 20% TCS on foreign transactions was earlier meant to be effective 1 July, but later postponed to be applicable from October 1.
