Summary of this article
TCS on overseas travel cut to 2%
Education and medical remittances get lower TCS
Goods like scrap, minerals see uniform 2% rate
Move eases cash flows, simplifies tax compliance
The Union Budget 2026 has brought cheers to those flying abroad or remitting money for education and medical treatment. Union Minister of Finance Nirmala Sitharaman on February 1, 2026, announced a major rationalisation of tax collected at source (TCS) rates. She proposed sharp reductions across overseas travel, education, medical remittances and select goods, in a move aimed at easing cash flow pressures and simplifying compliance for taxpayers.
“I propose to reduce TCS rate on the sale of overseas tour program packages from the current 5 per cent and 20 per cent to 2 percent without any stipulation of amount,” she said in her Budget speech.
Sitharaman also announced relief for families sending money abroad for education and healthcare. “I propose to reduce the TCS rate for pursuing education and for medical purposes under the Liberalised Remittance Scheme (LRS) from 5 per cent to 2 per cent,” she said.
Beyond foreign remittances, the Budget also proposed rationalisation of TCS rates on certain goods. TCS on sellers of specific goods, such as alcoholic liquor, scrap and minerals are proposed to be aligned at 2 per cent, while the rate on tendu leaves are proposed to be reduced from 5 per cent to 2 per cent.
“Rationalisation of tax collection at source (TCS) rates proposes to reduce multiplicity of TCS rates. Also, certain TCS rates are rationalised to address the cash flow issues on this account,” she said.
Tax and industry experts broadly welcomed the move. “The Union Budget has introduced important rationalisation measures in relation to Tax Collected at Source (TCS) that brings in significant benefits to individuals, particularly those incurring expenses on foreign travel and overseas education, while still continuing to ensure tax reporting and traceability of foreign remittances,” said Sudhakar Sethuraman, partner, Deloitte India.
Rajarshi Dasgupta, executive director – tax, AQUILAW, said the cuts would provide upfront relief. “These measures are aimed at providing substantial upfront tax relief and easing the financial burden for international travel, foreign education, and medical expenses abroad.”
According to experts, the move particularly is beneficial for the middle class consumers. “Lower TCS rates mean individuals now part with less money upfront, improving liquidity to meet other overseas expenses,” said Sethuraman. He said that this is particularly beneficial for middle-income families funding foreign education, where remittances are often staggered over the year.
Apart from improving liquidity, the move would also simplify processes. Says Sukrit Kapoor, Partner, King Stubb & Kasiva: “This reduction not only improves liquidity for high-volume transactions, but also signals the government’s intent to simplify indirect tax obligations, reinforcing voluntary compliance and reducing procedural burdens.”
What is TCS?
Tax Collected at Source is collected by banks or authorised dealers on overseas remittances under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS). The tax collected reflects in Form 26AS and can be adjusted against the final income tax liability, with refunds available for any excess.
It is important to note that TCS represents only a cash outflow and is not a tax levy. “TCS can be adjusted against tax due on other incomes. If there is no other tax due, the individual can claim reasons for such TCS by filing a tax return. Thanks to the digitisation measures, refunds have been processed within a few days to a few weeks in most cases,” says Sethuraman.
Rationalisation of TCS: What the Finance Bill Says
The Finance Bill says that “Clause 73 of the Bill seeks to amend section 394 of the Income-tax Act, 2025 relating to collection of tax at source. Sub-section (1) of the said section, inter alia, provides that every person shall collect tax at source at the time of debiting of the amount payable or at the time of receipt of such amount from the buyer or licensee or lessee, as the case may be, whichever is earlier, on the receipts specified in that said sub-section.”
“It is proposed to amend the said sub-section so as to rationalise the rates of tax collected at source for the purpose of sale of–– (i) alcoholic liquor for human consumption; (ii) tendu leaves; (iii) scrap; and (iv) minerals being coal or lignite or iron ore, tax will be required to be collected at source at the rate of 2%. It is further proposed to amend the said sub-section so as to require that for remittances made under the Reserve Bank of India’s Liberalised Remittance Scheme for the purposes of education or medical treatment, tax will be collected at source at the rate of 2% instead of the existing rate of 5%. It is also proposed to amend the said sub-section so as to remove the threshold of 10 lakh on sale of overseas tour program package for applicability of tax collected at source at higher rate of 20% and to require that on sale of overseas tour program package, tax be collected at source at the rate of 2% irrespective of the amount. These amendments will take effect from 1st April, 2026.”
To sum up, the TCS rationalisation enhances taxpayer convenience, eases immediate cash-flow pressures, and reflects a more balanced approach between compliance requirements and individual financial realities, says Sethuraman.
