Flat 2 per cent TCS on foreign tour packages: Replaces the earlier 5 per cent–20 per cent slab system, sharply lowering upfront tax outgo on high-value trips.
Big liquidity relief for travellers: On a Rs 20 lakh trip, upfront TCS falls from nearly Rs 4 lakh earlier to just Rs 40,000 now.
Lower TCS on education and medical remittances: Overseas education and medical spends under LRS now attract 2 per cent TCS instead of 5 per cent.
One of the most notable announcements in the Union Budget 2026-27 is a sharp rationalisation of Tax Collected at Source (TCS) on overseas expenditures, especially foreign travel. For years, TCS has been a major upfront cash hurdle for travellers, acting as a temporary tax block on funds being remitted abroad under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS). Budget 2026 fundamentally alters this calculus, making international travel planning smoother and less cash-intensive for Indian households.
Under the earlier regime, TCS on overseas tour programme packages operated on a two-tier structure: 5 per cent on package costs up to Rs 10 lakh and a steep 20 per cent on amounts exceeding that threshold. This meant high-value trips could attract sizeable upfront TCS collections, often running into tens of thousands of rupees locked with the government until adjusted in the taxpayer’s annual return.
“In a significant shift, Budget 2026 replaces this with a uniform 2 per cent TCS rate on all overseas tour packages, regardless of cost, and eliminates the earlier slab system altogether. In practical terms, the difference is stark: on a Rs 20 lakh outlay, travellers earlier faced a potential TCS hold of nearly Rs 4 lakh; under the new rule, this drops sharply to just Rs 40,000 collected upfront. That’s an immediate improvement in liquidity - money that can instead be deployed for flights, accommodation, insurance or experiential spending,” says CA Niyati Shah, vertical head - personal tax at 1 Finance.
Importantly, TCS is not an additional tax; it is merely a source collection mechanism. It gets adjusted against one’s final income tax liability at the time of filing returns. However, the timing matters significantly: high TCS means cash flow stress for families and individuals planning foreign trips, particularly when bookings, visa fees, etc., need to be paid well ahead of time. The 2 per cent rate sharply eases this burden.
“The rationalisation also extends to other remittances under LRS: amounts sent for education and medical purposes abroad will now attract a 2 per cent TCS instead of the earlier 5 per cent. This enhances predictability and reduces upfront costs for essential overseas expenditures,” says Shah.
For India’s growing traveller cohort - from families planning long-awaited vacations to students and individuals seeking specialised medical treatment abroad, the TCS cut is not just a technical tax tweak; it is a tangible relief that improves budgeting, enhances cash flows and makes global mobility more affordable. In an era of rising travel aspirations, this change could catalyse stronger outbound tourism demand and better financial planning.
