Budget cuts tax collected at source for foreign tour packages to a uniform 2%

In a move expected to ease the tax burden on people buying foreign tour packages, Budget 2026 has proposed reducing the tax collected at source (TCS) from 5% and 20% to a uniform 2%, irrespective of the amount spent.

Currently, packages up to ₹10 lakh attract 5% TCS and those in excess of ₹10 lakh attract 20%.

The Budget has also proposed lowering the TCS rate on expenses incurred for pursuing education and for medical treatment abroad under the liberalized remittance scheme (LRS). These categories currently attract a 5% TCS in excess of ₹10 lakh, which is now proposed to be lowered to 2%, easing the upfront tax impact on families funding overseas education or medical care.

However, education expenses financed through loans taken from specified financial institutions remain fully exempt from TCS, continuing an important relief for students relying on formal education loans.

Budget 2025 provided some relief by raising the threshold for applicability of TCS on LRS transactions to ₹10 lakh from the earlier ₹7 lakh. This threshold continues in Budget 2026. It should be noted that ₹10 lakh is a cumulative limit applicable to all transactions under LRS, and not an individual limit.

For instance, let's say in the financial year 2026-27, you bought stocks worth ₹6 lakh in a foreign country. Two months later, you bought a tour package for a foreign holiday for ₹4 lakh. With these two transactions, your ₹10 lakh threshold has been exhausted, so all subsequent foreign payments will attract TCS at the applicable rates.

Since tour packages now attract a uniform 2% rate with no threshold, taxpayers should prioritize all other spends with zero TCS to benefit from the ₹10 lakh limit.

The Budget has retained a higher TCS rate for other foreign remittances that do not qualify for the concessional 2% rate. All such transactions will continue to attract TCS at 20% on amounts exceeding ₹10 lakh.