Union Budget 2026 Proposes Major Relief on Foreign Remittances with Lower TCS Rates
In a significant move aimed at reducing the tax burden on international transactions, the Union Budget for 2026 has proposed substantial reductions in the Tax Collected at Source (TCS) rates applicable to foreign tour packages and certain other remittances under the Liberalised Remittance Scheme (LRS).
Uniform 2% TCS for All Foreign Tour Packages
The Budget has introduced a major simplification by proposing a uniform TCS rate of 2% for all foreign tour packages, regardless of their value. This marks a substantial reduction from the previous tiered structure, where packages costing up to ₹10 lakh attracted a 5% TCS, and those exceeding ₹10 lakh were subject to a hefty 20% TCS.
This change is expected to provide immediate financial relief to Indian travelers planning overseas holidays, as it significantly lowers the upfront tax outlay required when purchasing international tour packages. The uniform rate eliminates complexity and makes tax planning more predictable for consumers.
Reduced TCS for Overseas Education and Medical Treatment
Beyond tour packages, the Budget has also proposed lowering the TCS rate on expenses incurred for pursuing education abroad and for medical treatment overseas under the LRS framework. These categories, which previously attracted a 5% TCS on amounts exceeding ₹10 lakh, will now see the rate reduced to 2%.
This reduction is particularly significant for families funding overseas education or medical care, as it eases the immediate tax impact at the time of remittance. However, it's important to note that education expenses financed through loans from specified financial institutions remain fully exempt from TCS, continuing crucial support for students relying on formal education loans.
Understanding the ₹10 Lakh Cumulative Threshold
The Budget maintains the ₹10 lakh cumulative threshold for LRS transactions, which was increased from ₹7 lakh in Budget 2025. This threshold applies to all transactions under LRS combined, not as individual limits for different categories.
For example, if in financial year 2026-27, you invest ₹6 lakh in foreign stocks and later purchase a ₹4 lakh foreign tour package, your ₹10 lakh threshold would be exhausted. All subsequent foreign remittances would then attract TCS at applicable rates.
Since tour packages now attract a uniform 2% rate with no separate threshold, financial experts recommend taxpayers prioritize other LRS spends with zero TCS to fully utilize the ₹10 lakh limit before engaging in tour package transactions.
Higher Rates Retained for Other Remittances
The Budget has retained the higher TCS rate of 20% for other foreign remittances that do not qualify for the concessional 2% rate. All such transactions will continue to attract TCS at 20% on amounts exceeding the ₹10 lakh cumulative threshold.
This differential treatment creates a clear hierarchy in the TCS structure, with education and medical expenses receiving the most favorable treatment, followed by tour packages, while other remittances face the highest rates.
The proposed changes represent a thoughtful balancing act between easing compliance burdens for legitimate international expenditures while maintaining appropriate oversight on foreign exchange outflows through the TCS mechanism.
