While presenting the Union Budget 2026, Finance Minister Nirmala Sitharaman on Sunday announced a reduction in the rate of tax collected at source (TCS) from 5% (or 20% ) to 2% for various purposes, including foreign education, medical expenses and overseas tour programmes.
“I propose to reduce TCS rate on the sale of overseas tour programme package from the current 5% and 20% to 2% without any stipulation of amount,” said FM Sitharaman in Parliament.
What does TCS mean?
When you remit money overseas for travel, treatment, or education, you need to convert Indian rupees into foreign currency. Under the Reserve Bank of India’s LRS (Liberalised Remittance Scheme), resident Indians can transfer up to $250,000 in a financial year.
At the time of transfer, taxpayers have to pay TCS at the rate of 5% which is an advance tax that can be adjusted at the time of filing the income tax return against the overall tax liability. For example, if your total tax liability is ₹50,000 for a financial year and you have paid TCS to the tune of ₹45,000 during the same year, then you would be entitled to receive ₹5,000 towards tax refund.
Is a flat rate of 5% applicable to all categories of remittances?
No, the tax rate varies by expense category. In the case of education, there is no TCS up to a limit of ₹10 lakh. When the remittance is more than ₹10 lakh, TCS of 5% kicks in. From the next financial year, this will be reduced to 2%.
However, when a foreign remittance is funded by an education loan, TCS does not apply.
For medical treatment, there is no TCS up to ₹10 lakh and 5% for the amount above ₹10 lakh. For overseas tour packages, TCS is levied at 5% (now reduced to 2%) on amounts up to ₹10 lakh and 20% on amounts above that.
When tax is adjusted while filing ITR, how will it benefit taxpayers?
It is beneficial because travellers do not need to spend a higher amount upfront. When a large amount is involved (say ₹30 lakh), an extra 5% on ₹20 lakh can increase the cash outgo by ₹1 lakh. Now, when the rate is reduced to 2%, cash outgo would fall to ₹40,000.
“With this, the lower amount stands to get blocked for the taxpayers. This move will be beneficial not only for the taxpayers but also for the income tax department,” believes CA Chirag Chauhan, founder of Mumbai-based CA Chauhan & Company.
“The tax department is supposed to return this money (collected as TCS) anyway, along with the interest on it. When this amount is tiny (2%), it could be adjusted against the overall tax liability at the year-end, but a higher amount (5% or 20%) is usually refunded along with 6% interest to the taxpayers in July or August (after the return is filed),” he adds.
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