Union Finance Minister Nirmala Sitharaman has announced a sharp cut in tax collected at source on select overseas spending. The Union Budget 2026 reduces TCS on overseas tour programme packages to a flat 2%.
The Budget also lowers TCS under the Liberalised Remittance Scheme for education and medical purposes. For many taxpayers, the change should reduce upfront cash outgo and lower the amount that gets blocked until return filing.
Tax Collected at Source (TCS) is a tax collected by the seller at the time of receiving money. In overseas tour packages, the seller collects TCS when a customer buys a foreign tour programme package.
Under the existing structure, overseas tour packages attracted 5% TCS on spending up to ₹10 lakh. Costs beyond ₹10 lakh drew a higher 20% TCS, which increased the upfront amount travellers had to pay.
In Parliament, Sitharaman said the government will cut the TCS rate on the sale of an overseas tour programme package from 5% and 20% to 2%. She also said the cut will apply “without any stipulation of amount,” effectively removing the minimum transaction threshold.
Overseas remittances often start with converting rupees into foreign currency for travel, treatment, or education. The Reserve Bank of India (RBI) permits such outward remittances under the Liberalised Remittance Scheme (LRS). Under LRS, resident Indians can remit up to $250,000 in a financial year.
Until now, TCS typically applied at 5% for education and medical remittances above ₹10 lakh. The Budget proposes reducing that 5% rate to 2% from the next financial year, while keeping the ₹10 lakh threshold for these two categories.
Education loans remain a separate case. When a remittance is funded by an education loan, the provided details indicate TCS does not apply. That distinction continues to matter for families who finance overseas studies through borrowing.
TCS works like an advance tax that taxpayers can adjust while filing the income tax return (ITR). If the taxpayer’s final tax liability is lower than TCS paid, the system processes a refund for the excess amount.
The cash flow impact grows with ticket size, especially for travel. The provided example shows how a ₹30 lakh overseas spend could block a large amount upfront. With the older structure, an additional 5% on ₹20 lakh could raise cash outgo by ₹1 lakh. At 2%, the same cash outgo would fall to ₹40,000.
Chartered accountant Chirag Chauhan said the lower rate reduces the amount “blocked” for taxpayers. He also said it could help the income tax department, because it would otherwise refund higher TCS amounts with interest. In his explanation, higher collections often return as refunds with 6% interest around July or August after the return is filed.
The budget proposal also clarifies what does not change. Remittances under LRS for purposes other than education and medical treatment will continue to attract a higher 20% TCS, according to the provided details. That keeps a stricter tax collection rule for other overseas spending.
Going forward, taxpayers and travel sellers will watch implementation details and timelines in the new financial year.