Budget 2026: TCS on Foreign Travel & Education Cut to 2%

Introduction: Major Relief for Overseas Spending

In a significant move to ease the financial burden on individuals, Union Finance Minister Nirmala Sitharaman announced a sharp reduction in the Tax Collected at Source (TCS) on certain overseas remittances in the Union Budget 2026. The new proposals slash the TCS rate to a uniform 2% for foreign tour packages, overseas education, and medical treatment under the Liberalised Remittance Scheme (LRS). This measure is expected to improve cash flow for families and provide a much-needed boost to the outbound travel industry.

Understanding TCS on Foreign Remittances

Tax Collected at Source is an upfront tax collected by an authorised dealer, typically a bank, when an individual sends money abroad under the LRS. It applies to various transactions, including funding higher education, medical expenses, investments, and booking international tour packages. It is important to note that TCS is not an additional tax. The amount collected can be adjusted against the individual's final income tax liability or claimed as a refund while filing annual returns. The primary purpose of TCS is to track large-value overseas transactions.

Key TCS Rate Changes in Budget 2026

The budget introduces a major rationalisation of the TCS structure, making it simpler and more affordable for taxpayers. The previous multi-tiered system, which included rates as high as 20%, has been streamlined.

Remittance Category	Previous TCS Rate	New TCS Rate (Budget 2026)
Overseas Tour Packages	5% (up to ₹7 lakh) and 20% (above ₹7 lakh)	Flat 2% (No threshold)
Education (Self-funded)	5% (on amount exceeding ₹10 lakh)	2%
Medical Treatment	5%	2%
Education (via Loan)	0%	0% (Unchanged)

Impact on Students and Families

The decision to lower TCS on self-funded overseas education from 5% to 2% is a welcome relief for thousands of students. According to RBI data, outward remittances for studies abroad totalled approximately $2.92 billion in FY 2024-25, highlighting the significant financial outflow from Indian households for this purpose. The reduced rate means less capital is blocked at the time of remittance, improving liquidity for families managing high tuition fees and living expenses. Similarly, those seeking medical treatment abroad will benefit from the lower upfront tax outgo.

Kunal Savani, Partner at Cyril Amarchand Mangaldas, noted, "This is a timely relief that eases the financial burden on students and families seeking treatment or education abroad, especially at a time of rising global costs."

A Boost for the Travel and Tourism Sector

The most significant change is for overseas tour packages, where the TCS has been cut to a flat 2% with no minimum threshold. This replaces the earlier 5% and 20% slabs, which were seen as a deterrent by both travellers and tour operators. The high 20% rate blocked a substantial amount of a traveller's funds, impacting their budget and discouraging package bookings. The new, lower rate is expected to revive the outbound tourism industry and make international travel more accessible.

Industry Perspective and Analysis

While the industry has largely welcomed the move, some experts believe more could have been done. Pavan Kavad, Managing Director of Prithvi Exchange, stated that while the rationalisation is a step in the right direction, completely removing TCS on remittances funded by education loans would have provided deeper relief. "These families already shoulder significant financial pressure through rising tuition fees, living expenses and interest repayments," he said.

The TCS reduction is part of a broader government strategy to simplify the tax regime ahead of the new Income Tax Act, 2025, which comes into effect on April 1, 2026. Other measures announced in the budget, such as extended deadlines for revising tax returns and a new window for foreign asset disclosure, point towards a more taxpayer-friendly compliance environment.

Broader Tax Reforms in Budget 2026

The TCS changes were part of a larger package of direct tax reforms. The Finance Minister also announced that interest awarded by the Motor Accident Claims Tribunal will now be fully tax-exempt, ending years of ambiguity. Furthermore, to simplify compliance for small investors, depositories like CDSL and NSDL will now accept and forward Form 15G/15H to companies, preventing unnecessary TDS deductions.

Conclusion

The reduction of TCS rates on overseas remittances for education, medical, and travel purposes is a significant consumer-friendly measure in Union Budget 2026. It directly addresses the cash flow concerns of the middle class, making essential foreign expenditures more manageable. By lowering the upfront tax burden, the government has provided tangible relief that supports student aspirations, healthcare needs, and the revival of the tourism sector, all while continuing its path of tax simplification.