Union Budget 2026 TCS Changes Explained Tax Collected At Source Updates

The Union Budget 2026, presented on February 1, 2026, brought several taxpayer-friendly changes, with a strong focus on simplifying Tax Collected at Source (TCS) rules. Finance Minister Nirmala Sitharaman announced rationalisation of TCS rates to reduce complexity, lower upfront costs for common transactions like foreign travel, education, and medical treatment abroad, and improve compliance. These updates take effect mostly from April 1, 2026, under the new Income Tax Act, 2025. No major changes were made to income tax slabs, but TCS reforms provide real relief to individuals and families planning overseas expenses.

TCS is a tax mechanism where the seller or service provider collects a small percentage of tax directly from the buyer or remitter at the time of transaction. The collected amount is deposited with the government, and you can claim credit for it when filing your income tax return (ITR). It works like an advance tax payment. The main goal is to track high-value transactions and ensure tax compliance without waiting for the end of the financial year.

Common TCS applies to:

• Foreign remittances under the Liberalised Remittance Scheme (LRS) – up to USD 250,000 per year per person.
• Sale of overseas tour packages.
• Sale of goods like scrap, minerals, alcohol, tendu leaves, etc.
• E-commerce operators and other specified categories.

Previously, TCS rates varied widely (1%, 5%, 20%), causing confusion. The Budget 2026 simplifies many to a uniform 2% rate in key areas.

Major TCS Changes in Budget 2026

1. LRS remittances for education or medical treatment: Previously, TCS was 0% up to Rs 10 lakh aggregate per financial year and 5% above Rs 10 lakh (for self-funded cases; loan-funded education from specified banks was exempt). Now, it is reduced to a flat 2% above Rs 10 lakh. The threshold stays at Rs 10 lakh. Other LRS purposes (like investment, gifts, or general travel) remain at 20% above Rs 10 lakh.

Example: If you remit Rs 15 lakh for your child's overseas education in FY 2026-27, TCS collected will be 2% on Rs 5 lakh = Rs 10,000 (instead of Rs 25,000 earlier). This saves money upfront, especially for middle-class families funding studies or treatment abroad.

2. Overseas tour programme packages: This is one of the biggest reliefs. Earlier, it was 5% on amounts up to Rs 10 lakh and 20% above Rs 10 lakh. Now, it is a flat 2% on the entire amount, with no threshold. Even small bookings (e.g., Rs 2 lakh holiday package) attract only 2% TCS.

This makes international travel cheaper and encourages tourism. Tour operators and travel agencies will collect less tax, passing savings to customers. Families planning Europe trips or beach vacations will benefit directly.

3. Other goods and transactions unified at 2%:
   • Sale of alcoholic liquor for human consumption: Increased from 1% to 2%.
   • Sale of tendu leaves: Reduced from 5% to 2%.
   • Sale of scrap: Increased from 1% to 2%.
   • Sale of minerals (coal, lignite, iron ore): Increased from 1% to 2%.

These changes aim to rationalise the system, reduce multiple rate slabs, and minimise compliance hassles for businesses. No threshold changes in most cases except where specified.

Benefits and Impact of These TCS Updates

The reductions bring more cash in hand for individuals. Students pursuing higher education abroad (USA, UK, Australia, Canada) face lower upfront burden. Parents remitting for medical treatment (surgeries, specialised care) save thousands of rupees. Travel enthusiasts benefit from cheaper foreign holidays, boosting the tourism sector.

Businesses selling specified goods (scrap dealers, miners, liquor sellers) see standardised rates, easing accounting. Overall, simplification reduces errors in TCS collection and deposit, lowering penalties for non-compliance.

TCS is refundable or adjustable. If your total tax liability is lower than TCS collected, you get a refund or credit when filing ITR. Always collect Form 27D (TCS certificate) from the collector (bank, tour operator, seller). Keep records of remittances and purposes, as banks ask for purpose codes.

For education remittances, loan-funded cases from approved banks continue to have exemptions in many scenarios. Check RBI LRS guidelines alongside.

Who Needs to Pay Attention?

• Individuals/families sending money abroad for studies, health, or travel.
• NRIs or returning Indians planning remittances.
• Businesses in scrap, minerals, liquor, or tendu leaves trade.
• Travel agencies and tour operators.

Small remittances (under thresholds) are often unaffected. But aggregate all LRS outflows in a year carefully.

Compliance Tips for TCS in 2026-27

• Track annual LRS remittances via your bank’s Form 15CC or statements.
• Declare correct purpose to banks/authorised dealers to avail lower 2% rate.
• File ITR on time to claim TCS credit (use AIS – Annual Information Statement on the e-filing portal).
• Businesses must deposit collected TCS by the 7th of the next month and file TCS returns quarterly.
• Use the new simplified forms under Income Tax Act, 2025 for easier filing from April 2026.

If you overpay or face issues with refunds, professional help speeds things up.

Why Consult a Local Expert?

TCS rules involve nuances like thresholds, exemptions, purpose classification, and credit claims. Misclassification (e.g., wrong LRS purpose code) can lead to higher 20% TCS instead of 2%. With the new Act and changes, staying compliant is crucial to avoid notices or blocked refunds.

Search for a Chartered Accountant near me or Tax consultant near me to get personalised advice. A CA near me can review your remittances, optimise planning, help file TCS returns accurately, and maximise credits/refunds. Whether you are a student’s parent, frequent traveller, or business owner, consulting a Chartered Accountant near me & Tax consultant near me saves time, money, and stress. Many offer services for LRS compliance, Form 15CA/CB filing, and ITR optimisation. Use local directories or Google to find reliable CA near me or Tax consultant near me options in your city. Early consultation helps you plan remittances efficiently under Budget 2026 rules.

Conclusion

Budget 2026’s TCS reforms mark a positive step towards ease of living and simplicity. Lower rates on education, medical, and tour packages put more money back in citizens’ pockets while maintaining tax discipline. Uniform 2% rates reduce confusion for businesses. As these apply from FY 2026-27, stay updated via the Income Tax Department website or official notifications.

Tax laws evolve, so professional guidance is key. Don’t hesitate to reach out to a Chartered Accountant near me, CA near me, or Tax consultant near me for tailored support on TCS compliance, refund claims, or remittance planning. A quick search for CA near me or Tax consultant near me connects you with experts who can guide you through these changes effectively.

By understanding and adapting to these updates, Indians can make smarter financial decisions for global opportunities like education, healthcare, and travel. Budget 2026 balances revenue needs with taxpayer relief – a win for all.