diff --git a/packages/frappe-ui-react/src/components/index.ts b/packages/frappe-ui-react/src/components/index.ts
index a1a7101c..6efd6cd7 100644
--- a/packages/frappe-ui-react/src/components/index.ts
+++ b/packages/frappe-ui-react/src/components/index.ts
@@ -30,6 +30,7 @@ export * from "./spinner";
 export * from "./switch";
 export { default as TabButtons } from "./tabButtons";
 export * from "./tabs";
+export * from "./tag";
 export { default as TaskStatus } from "./taskStatus";
 export * from "./textInput";
 export * from "./textarea";
diff --git a/packages/frappe-ui-react/src/components/tag/index.ts b/packages/frappe-ui-react/src/components/tag/index.ts
new file mode 100644
index 00000000..59beec73
--- /dev/null
+++ b/packages/frappe-ui-react/src/components/tag/index.ts
@@ -0,0 +1,2 @@
+export { default as Tag } from "./tag";
+export * from "./types";
diff --git a/packages/frappe-ui-react/src/components/tag/tag.stories.tsx b/packages/frappe-ui-react/src/components/tag/tag.stories.tsx
new file mode 100644
index 00000000..b977f647
--- /dev/null
+++ b/packages/frappe-ui-react/src/components/tag/tag.stories.tsx
@@ -0,0 +1,139 @@
+import type { Meta, StoryObj } from "@storybook/react-vite";
+import { Plus } from "lucide-react";
+
+import Tag from "./tag";
+import type { TagProps } from "./types";
+
+export default {
+  title: "Components/Tag",
+  component: Tag,
+  tags: ["autodocs"],
+  argTypes: {
+    className: {
+      control: "text",
+      description: "Additional CSS classes for the tag",
+    },
+    size: {
+      control: { type: "select", options: ["sm", "md", "lg"] },
+      description: "Size of the tag",
+    },
+    variant: {
+      control: {
+        type: "select",
+        options: ["solid", "subtle", "outline", "ghost"],
+      },
+      description: "Variant style of the tag",
+    },
+    label: {
+      control: "text",
+      description: "Text label displayed inside the tag",
+    },
+    disabled: {
+      control: "boolean",
+      description: "Disables the tag when set to true",
+    },
+    prefixIcon: {
+      control: false,
+      description: "Icon component displayed before the label",
+    },
+    suffixIcon: {
+      control: false,
+      description: "Icon component displayed after the label",
+    },
+    visible: {
+      control: "boolean",
+      description: "Controls the visibility of the tag (controlled mode)",
+    },
+    onVisibleChange: {
+      action: "visibility changed",
+      description: "Callback function when the visibility of the tag changes",
+    },
+    onRemove: {
+      action: "removed",
+      description: "Callback function when the remove icon is clicked",
+    },
+  },
+  parameters: { docs: { source: { type: "dynamic" } }, layout: "centered" },
+} as Meta<typeof Tag>;
+
+type Story = StoryObj<TagProps>;
+
+export const Default: Story = {
+  args: {
+    size: "sm",
+    variant: "solid",
+    label: "Discover",
+  },
+  render: (args) => (
+    <div className="min-h-20 flex justify-center items-center">
+      <Tag {...args} />
+    </div>
+  ),
+};
+
+export const Subtle: Story = {
+  args: {
+    size: "sm",
+    variant: "subtle",
+    label: "Discover",
+  },
+  render: (args) => (
+    <div className="min-h-20 flex justify-center items-center">
+      <Tag {...args} />
+    </div>
+  ),
+};
+
+export const Outline: Story = {
+  args: {
+    size: "sm",
+    variant: "outline",
+    label: "Discover",
+  },
+  render: (args) => (
+    <div className="min-h-20 flex justify-center items-center">
+      <Tag {...args} />
+    </div>
+  ),
+};
+
+export const Ghost: Story = {
+  args: {
+    size: "sm",
+    variant: "ghost",
+    label: "Discover",
+  },
+  render: (args) => (
+    <div className="min-h-20 flex justify-center items-center">
+      <Tag {...args} />
+    </div>
+  ),
+};
+
+export const Disabled: Story = {
+  args: {
+    size: "md",
+    variant: "solid",
+    label: "Discover",
+    disabled: true,
+  },
+  render: (args) => (
+    <div className="min-h-20 flex justify-center items-center">
+      <Tag {...args} />
+    </div>
+  ),
+};
+
+export const WithPrefix: Story = {
+  args: {
+    size: "md",
+    variant: "solid",
+    label: "Mobile",
+    prefixIcon: () => <Plus className="w-3 h-3" />,
+  },
+  render: (args) => (
+    <div className="min-h-20 flex justify-center items-center">
+      <Tag {...args} />
+    </div>
+  ),
+};
diff --git a/packages/frappe-ui-react/src/components/tag/tag.tsx b/packages/frappe-ui-react/src/components/tag/tag.tsx
new file mode 100644
index 00000000..6d73bc86
--- /dev/null
+++ b/packages/frappe-ui-react/src/components/tag/tag.tsx
@@ -0,0 +1,78 @@
+/**
+ * External dependencies.
+ */
+import { useCallback, useState } from "react";
+import clsx from "clsx";
+import { X } from "lucide-react";
+
+/**
+ * Internal dependencies.
+ */
+import type { TagProps } from "./types";
+import Button from "../button/button";
+
+const Tag = ({
+  size,
+  variant,
+  label,
+  prefixIcon,
+  suffixIcon: SuffixIcon = X,
+  className,
+  disabled = false,
+  visible: controlledVisible,
+  onVisibleChange,
+  onRemove,
+}: TagProps) => {
+  const [internalVisible, setInternalVisible] = useState(true);
+
+  const isControlled = controlledVisible !== undefined;
+  const visible = isControlled ? controlledVisible : internalVisible;
+
+  const handleRemove = useCallback(() => {
+    if (isControlled) {
+      onVisibleChange?.(false);
+    } else {
+      setInternalVisible(false);
+    }
+    onRemove?.();
+  }, [isControlled, onVisibleChange, onRemove]);
+
+  if (!visible) return null;
+
+  return (
+    <Button
+      size={size}
+      variant={variant}
+      label={label}
+      iconLeft={prefixIcon}
+      iconRight={() => (
+        <button
+          type="button"
+          className={clsx(
+            "flex items-center justify-center",
+            disabled && "cursor-auto!"
+          )}
+          onClick={handleRemove}
+          disabled={disabled}
+          aria-label="Remove tag"
+        >
+          <SuffixIcon
+            className="w-3 h-3"
+            aria-hidden="true"
+            focusable="false"
+          />
+        </button>
+      )}
+      className={clsx(
+        "focus:border-gray-900 focus:outline-none focus:ring-2 focus:ring-outline-gray-3 gap-1.25! cursor-auto!",
+        size === "sm" && "text-xs! h-5! rounded-[5px]! px-1.5! py-0.75!",
+        size === "md" && "text-sm! h-6! rounded-[6px]! px-1.5! py-1!",
+        size === "lg" && "text-base! h-7! rounded-[8px]! px-2! py-1.5!",
+        className
+      )}
+      disabled={disabled}
+    />
+  );
+};
+
+export default Tag;
diff --git a/packages/frappe-ui-react/src/components/tag/tests/tag.tsx b/packages/frappe-ui-react/src/components/tag/tests/tag.tsx
new file mode 100644
index 00000000..74b7fe13
--- /dev/null
+++ b/packages/frappe-ui-react/src/components/tag/tests/tag.tsx
@@ -0,0 +1,77 @@
+import { render, screen, fireEvent } from "@testing-library/react";
+import "@testing-library/jest-dom";
+import Tag from "../tag";
+
+describe("Tag Component", () => {
+  it("renders with label", () => {
+    render(<Tag label="Test Tag" />);
+    expect(screen.getByText("Test Tag")).toBeInTheDocument();
+  });
+
+  it("renders prefix icon", () => {
+    const PrefixIcon = () => <span data-testid="prefix-icon" />;
+    render(<Tag label="Tag with Icon" prefixIcon={PrefixIcon} />);
+    expect(screen.getByTestId("prefix-icon")).toBeInTheDocument();
+  });
+
+  it("handles uncontrolled removal", () => {
+    render(<Tag label="Removable Tag" />);
+    // Expect the label to be present
+    expect(screen.getByText("Removable Tag")).toBeInTheDocument();
+
+    const removeButton = screen.getByLabelText("Remove tag");
+    fireEvent.click(removeButton);
+
+    // After click, component should return null
+    expect(screen.queryByText("Removable Tag")).not.toBeInTheDocument();
+  });
+
+  it("handles controlled removal", () => {
+    const handleVisibleChange = jest.fn();
+    const handleRemove = jest.fn();
+
+    const { rerender } = render(
+      <Tag
+        label="Controlled Tag"
+        visible={true}
+        onVisibleChange={handleVisibleChange}
+        onRemove={handleRemove}
+      />
+    );
+
+    const removeButton = screen.getByLabelText("Remove tag");
+    fireEvent.click(removeButton);
+
+    expect(handleVisibleChange).toHaveBeenCalledWith(false);
+    expect(handleRemove).toHaveBeenCalled();
+
+    rerender(
+      <Tag
+        label="Controlled Tag"
+        visible={false}
+        onVisibleChange={handleVisibleChange}
+        onRemove={handleRemove}
+      />
+    );
+    expect(screen.queryByText("Controlled Tag")).not.toBeInTheDocument();
+  });
+
+  it("respects disabled state", () => {
+    const handleRemove = jest.fn();
+    render(<Tag label="Disabled Tag" disabled onRemove={handleRemove} />);
+
+    const removeButton = screen.getByLabelText("Remove tag");
+    expect(removeButton).toBeDisabled();
+
+    fireEvent.click(removeButton);
+    expect(handleRemove).not.toHaveBeenCalled();
+  });
+
+  it("renders with custom class name", () => {
+    render(<Tag label="Custom Class" className="my-custom-class" />);
+    const tagText = screen.getByText("Custom Class");
+    // The button that contains the text
+    const button = tagText.closest("button");
+    expect(button).toHaveClass("my-custom-class");
+  });
+});
diff --git a/packages/frappe-ui-react/src/components/tag/types.ts b/packages/frappe-ui-react/src/components/tag/types.ts
new file mode 100644
index 00000000..c56356ea
--- /dev/null
+++ b/packages/frappe-ui-react/src/components/tag/types.ts
@@ -0,0 +1,16 @@
+import type { ButtonVariant } from "../button/types";
+
+export interface TagProps {
+  size?: "sm" | "md" | "lg";
+  variant?: ButtonVariant;
+  label?: string;
+  // eslint-disable-next-line @typescript-eslint/no-explicit-any
+  prefixIcon?: React.ComponentType<any>;
+  // eslint-disable-next-line @typescript-eslint/no-explicit-any
+  suffixIcon?: React.ComponentType<any>;
+  className?: string;
+  disabled?: boolean;
+  visible?: boolean;
+  onVisibleChange?: (visible: boolean) => void;
+  onRemove?: () => void;
+}