Budget 2026 Brings Major Relief: TCS Rate Slashed to 2% for Overseas Expenses
In a significant move aimed at easing financial burdens for Indians spending abroad, Finance Minister Nirmala Sitharaman announced a substantial reduction in the Tax Collected at Source (TCS) rate during her Union Budget 2026 presentation on Sunday. The TCS rate on overseas tour program packages has been lowered from the existing 5% and 20% to a flat 2%, without any amount stipulation.
Understanding TCS and Its Application
Tax Collected at Source (TCS) is an advance tax mechanism that applies when resident Indians convert rupees into foreign currency for specific purposes under the Reserve Bank of India's Liberalised Remittance Scheme (LRS). This scheme allows individuals to transfer up to $250,000 per financial year overseas.
Previously, taxpayers had to pay TCS at 5% during currency conversion, which could be adjusted against their overall tax liability when filing income tax returns. For instance, if someone's total tax liability was ₹50,000 and they had paid ₹45,000 as TCS during the year, they would be eligible for a ₹5,000 tax refund.
Category-Wise TCS Structure and Changes
The TCS rate varies across different expense categories, and Budget 2026 introduces important modifications:
- Foreign Education: No TCS applies up to ₹10 lakh. For amounts exceeding this limit, the rate drops from 5% to 2% starting next financial year. Importantly, TCS does not apply when foreign remittances are funded through education loans.
- Medical Treatment: Similar to education, no TCS up to ₹10 lakh, with the rate above this threshold reduced from 5% to 2%.
- Overseas Tour Packages: Previously, TCS was levied at 5% on amounts up to ₹10 lakh and 20% above that. Now, a uniform 2% rate applies regardless of the amount.
Practical Benefits for Taxpayers
The reduction in TCS rates brings immediate financial relief by decreasing upfront cash outflows. For example, on a ₹30 lakh overseas expense, the additional 5% on ₹20 lakh previously meant ₹1 lakh extra. With the new 2% rate, this additional amount drops significantly to ₹40,000.
"This move reduces the amount that gets temporarily blocked for taxpayers," explains CA Chirag Chauhan, founder of Mumbai-based CA Chauhan & Company. "It benefits both taxpayers and the income tax department. While the tax department eventually returns TCS amounts with interest, a lower 2% rate means smaller amounts need adjustment or refund, compared to the previous 5% or 20% rates that typically required refunds with 6% interest after tax return filing."
The revised TCS structure represents a thoughtful simplification of tax procedures while providing tangible financial relief to Indians pursuing education, medical treatment, or travel abroad.
