In a move set to make foreign travel more affordable, Finance Minister Nirmala Sitharaman announced a reduction in the Tax Collected at Source (TCS) on overseas tour packages while presenting the Union Budget 2026-27 on Sunday. She proposed to reduce the TCS rate on the sale of overseas tour programme packages to 2 per cent.
Currently, the TCS rates stand at 5 per cent and 20 per cent.
Major relief for overseas travel, education, and healthcare
The Finance Minister clarified that the reduced rate will apply without any stipulation of amount, making foreign travel transactions simpler and less burdensome for taxpayers.
“I propose to reduce the TCS rate on the same scale of overseas tour programme package from the current 5% and 20% to 2% without any stipulation of amount,” Sitharaman said.
In another relief measure, Sitharaman proposed to reduce the TCS rate under the Liberalised Remittance Scheme (LRS) for individuals pursuing education and for medical purposes. The TCS rate for these categories will be lowered from 5 per cent to 2 per cent.
“I propose to reduce TCS rate for pursuing education and for medical purposes under the Liberalized Remittance Scheme, popularly known as LRS,” she said.
The reduction in TCS rate is expected to ease the financial burden on families sending money abroad for education or medical treatment.
To remove ambiguity in tax deductions, Sitharaman said the supply of manpower services will be specifically brought within the ambit of payment contractors for the purpose of TDS. As a result, TDS on such services will be applicable at the rate of either 1 per cent or 2 per cent.
This proposal aims to provide clarity to businesses and service providers and reduce disputes related to TDS rates.
Government’s focus is on making income tax system simpler, more citizen-friendly: Sitharaman
Sitharaman also announced a series of tax-related proposals in Budget 2026-27, aimed at improving ease of living, simplifying compliance, and providing relief to common taxpayers.
Presenting the Budget in Parliament, the Finance Minister said the government’s focus is on making the income tax system simpler and more citizen-friendly.
As part of this effort, she announced income tax exemption on any interest awarded by the Motor Accident Claims Tribunal to a natural person.
She said, “Any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax and any TDS from this account will be done away with”.
This move is expected to directly benefit accident victims and their families, ensuring that compensation received is not reduced due to tax deductions.
With inputs from agencies