In this guide
Booking a foreign holiday used to mean an immediate 20% TCS hit on anything above Rs 10 lakh. Sending money abroad for your child’s university fees attracted 5% TCS. From 01 April 2026, the Finance Act 2026 has slashed both - overseas tour packages now carry a flat 2% TCS with no threshold, and education/medical remittances under LRS are down to 2% from 5%.
But not all TCS went down. Liquor sellers now pay 2% TCS (up from 1%), and scrap, tendu leaves, and minerals are also rationalised to a uniform 2%. This guide covers every TCS category that changed, provides the complete old-vs-new rate table, shows worked examples with INR savings, and explains how to claim TCS credit in your ITR.
What Is TCS and Why Did the Government Change the Rates?
Tax Collected at Source (TCS) is a tax collected by the seller or authorised dealer at the time of a specified transaction and deposited with the Income Tax Department. Under Section 394 of the Income Tax Act, 2025 (corresponding to Section 206C of the Income Tax Act, 1961), TCS applies to transactions like foreign remittances, overseas tour packages, sale of certain goods (liquor, scrap, minerals), and high-value motor vehicles.
The Finance Act 2026 rationalised TCS rates to reduce multiplicity. The government’s stated objective is to “minimise locking of funds” and “address cash-flow issues” caused by high upfront TCS rates, especially for families sending money abroad for education and medical treatment.
For taxpayers filing income tax return filing, TCS is not an additional tax. It is fully adjustable against your income tax liability when filing your ITR. Any excess TCS is refunded.
Key Terms You Should Know
- Section 394 - IT Act 2025: The consolidated TCS provision replacing Section 206C of the old Act. Covers all TCS categories including LRS, overseas tours, goods, and motor vehicles.
- Liberalised Remittance Scheme (LRS): RBI scheme allowing resident individuals to remit up to USD 250,000 per financial year for permissible transactions (education, medical, investment, gifts, travel). TCS applies on amounts exceeding Rs 10 lakh.
- Overseas Tour Package: A package sold by an Indian seller covering international travel with accommodation, boarding, or similar services. TCS is collected by the tour operator or travel agent.
- Section 80E (Education Loan): Interest on education loans from specified financial institutions. Remittances funded through Section 80E loans are exempt from TCS entirely (0%).
- Form 133: The new TCS certificate under IT Rules 2026, replacing the earlier Form 27D. Issued by the TCS collector to the buyer/remitter.
- Form 26AS: Consolidated tax credit statement showing TCS collected on your transactions. Used to claim credit when filing ITR.
Who Is Affected by the TCS Rate Changes?
The changes affect multiple categories of taxpayers and businesses.
- International travellers booking overseas tour packages - flat 2% TCS replaces the 5%/20% slab, saving up to 18% on packages above Rs 10 lakh
- Parents of students studying abroad - LRS education remittances now attract 2% instead of 5% on amounts above Rs 10 lakh
- Individuals sending money abroad for medical treatment - same 2% reduction applies
- Education loan borrowers - no change, remain fully exempt (0% TCS)
- Investors making overseas investments (foreign stocks, property, crypto) - unchanged at 20% above Rs 10 lakh
- Liquor wholesalers and retailers - TCS increased from 1% to 2%, raising working capital requirements
- Scrap dealers, tendu leaf traders, and mineral sellers - rates rationalised to uniform 2%
If you need help planning international remittances to minimise TCS impact, explore our tax planning services for personalised advice.
Complete TCS Rate Table: Old vs New Rates from April 2026
| TCS Category | Old Rate | New Rate (Apr 2026) | Threshold | Section (IT Act 2025) |
|---|---|---|---|---|
| Overseas Tour Package | 5% (≤Rs 10L) / 20% (>Rs 10L) | Flat 2% (no threshold) | None - from 1st rupee | Section 394 |
| LRS - Education (self-funded) | 5% above Rs 10L | 2% above Rs 10L | Rs 10 lakh/year | Section 394 |
| LRS - Education (via 80E loan) | 0.5% above Rs 10L | 0% (exempt) | Rs 10 lakh/year | Section 394 + 80E |
| LRS - Medical Treatment | 5% above Rs 10L | 2% above Rs 10L | Rs 10 lakh/year | Section 394 |
| LRS - Other (investment, gifts) | 20% above Rs 10L | 20% above Rs 10L (no change) | Rs 10 lakh/year | Section 394 |
| Alcoholic Liquor for Human Consumption | 1% | 2% | No threshold | Section 394 |
| Scrap | 1% | 2% | No threshold | Section 394 |
| Tendu Leaves | 5% | 2% | No threshold | Section 394 |
| Minerals (coal, lignite, iron ore) | 1-2% (varied) | 2% (uniform) | No threshold | Section 394 |
| Motor Vehicles (> Rs 10 lakh) | 1% | 1% (no change) | Rs 10 lakh per vehicle | Section 394 |
Note: The Rs 10 lakh LRS threshold is cumulative across all remittance purposes per financial year per individual. The overseas tour package TCS is independent of this threshold - it applies from the first rupee regardless of other LRS remittances.
How to Calculate TCS Savings Under the New Rates: Step-by-Step
- Identify your transaction type. Overseas tour package, LRS education, LRS medical, LRS investment, or goods purchase (liquor/scrap). Each has different rules.
- Check the applicable threshold. For LRS: Rs 10 lakh cumulative per year. For overseas tours: no threshold (flat 2% from first rupee). For goods: no threshold.
- Apply the new TCS rate. Overseas tours: 2% of total package value. LRS education/medical: 2% of amount exceeding Rs 10 lakh. LRS other: 20% of excess. Liquor/scrap: 2% of invoice value.
- Compare with old TCS for savings calculation. For a Rs 20 lakh overseas tour package: Old TCS = Rs 50,000 (5% on Rs 10L) + Rs 2,00,000 (20% on Rs 10L) = Rs 2,50,000. New TCS = Rs 40,000 (2% on Rs 20L). Saving: Rs 2,10,000 upfront.
- Check if education loan applies. If the remittance is funded through a Section 80E education loan from a specified institution, TCS is 0%. No TCS is collected. Verify with the authorised dealer.
- Ensure Form 26AS reflects the TCS correctly. The authorised dealer or seller deposits TCS with the government and issues Form 133 (replacing Form 27D). The TCS appears in your Form 26AS within 10-15 days.
- Claim TCS credit while filing ITR. Report TCS in the tax credit schedule of ITR-2 or ITR-3. If TCS exceeds your income tax liability, the excess is refunded after ITR processing.
Documents Needed for TCS Credit Claim in ITR
- Form 133 (new TCS certificate) - issued by the authorised dealer, tour operator, or seller
- Form 26AS - cross-verify TCS amounts deposited by the collector
- AIS (Annual Information Statement) - lists high-value forex transactions and TCS data
- Forex purchase receipts or wire transfer confirmations with amount, date, and purpose code
- Tour operator invoice showing TCS amount separately
- Education loan sanction letter - if claiming 0% TCS under Section 80E
- Bank statement showing remittance debits and TCS deductions
- RBI purpose code declaration submitted to the authorised dealer
- PAN and Aadhaar linked to the remitter’s account
Worked Examples: TCS Before and After Budget 2026
The following table shows the exact TCS savings for common scenarios.
| Scenario | Amount | Old TCS | New TCS (Apr 2026) | Upfront Saving |
|---|---|---|---|---|
| Europe tour package (family of 4) | Rs 15,00,000 | Rs 1,50,000 (5% on Rs 10L + 20% on Rs 5L) | Rs 30,000 (2% flat) | Rs 1,20,000 |
| Child’s US university fees (self-funded) | Rs 25,00,000 | Rs 75,000 (5% on Rs 15L excess) | Rs 30,000 (2% on Rs 15L excess) | Rs 45,000 |
| Education via Section 80E loan | Rs 25,00,000 | Rs 7,500 (0.5% on Rs 15L excess) | Rs 0 (fully exempt) | Rs 7,500 |
| Medical treatment abroad | Rs 20,00,000 | Rs 50,000 (5% on Rs 10L excess) | Rs 20,000 (2% on Rs 10L excess) | Rs 30,000 |
| Overseas investment (stocks, crypto) | Rs 20,00,000 | Rs 2,00,000 (20% on Rs 10L excess) | Rs 2,00,000 (20% - no change) | Nil |
| Liquor wholesale purchase | Rs 50,00,000 | Rs 50,000 (1%) | Rs 1,00,000 (2%) | -Rs 50,000 (increase) |
Note: The biggest savings are on overseas tour packages - the elimination of the 20% slab above Rs 10 lakh provides immediate cash-flow relief of Rs 1,20,000 on a Rs 15 lakh family trip. For liquor sellers, the TCS increase from 1% to 2% means higher upfront working capital deployment.
Common Mistakes to Avoid with TCS from April 2026
Mistake 1: Confusing LRS threshold with overseas tour threshold. LRS remittances (education, medical, investment) have a Rs 10 lakh cumulative threshold - TCS applies only on the excess. Overseas tour packages have no threshold - the flat 2% applies from the first rupee. These are independent calculations. See our crypto ITR guide for how overseas crypto investment TCS works under the 20% LRS category.
Mistake 2: Assuming TCS is an additional tax. TCS is fully adjustable against your income tax liability when filing ITR. If your total tax liability is Rs 2 lakh and TCS collected is Rs 50,000, you pay only Rs 1.5 lakh in self-assessment tax. Excess TCS is refunded after ITR processing.
Mistake 3: Not claiming TCS credit in ITR. Many taxpayers forget to include TCS in the tax credit schedule of their ITR. This results in paying more tax than necessary. Always verify Form 26AS for all TCS entries before filing.
Mistake 4: Failing to mention education loan for 0% TCS. If your child’s education is funded through a Section 80E loan from a specified financial institution, you must inform the authorised dealer. Without this declaration, the dealer will collect TCS at 2% instead of the exempt 0% rate.
Mistake 5: Liquor sellers not updating their systems to 2%. The TCS on alcoholic liquor has increased from 1% to 2%. Sellers who continue collecting at the old 1% rate will face a shortfall and potential penalty for under-collection under Section 276BB.
Penalties for Non-Compliance with TCS Provisions
TCS compliance carries strict penalties under the Income Tax Act.
Under Section 276BB of the old Act (corresponding provision in IT Act 2025), failure to collect TCS can result in imprisonment of up to 2 years and a fine. The Finance Act 2026 rationalised this to focus on penalties rather than prosecution for minor defaults.
Under Section 271CA (old Act) / corresponding IT Act 2025 provision, a penalty equal to the amount of TCS that the collector failed to collect is imposed. For a liquor seller who fails to collect 2% TCS on Rs 1 crore in sales, this means a penalty of Rs 2 lakh.
Additionally, interest at 1% per month is charged from the date TCS was collectible until the date it is actually collected. If TCS was collected but not deposited with the government, interest at 1.5% per month applies.
For remitters, the risk is indirect: if the authorised dealer fails to collect TCS, the remitter may face queries during ITR processing when AIS shows a foreign remittance without corresponding TCS.
How TCS Connects with LRS Limits, Form 26AS, and ITR Filing
The RBI’s Liberalised Remittance Scheme allows resident individuals to remit up to USD 250,000 per financial year. The Rs 10 lakh TCS threshold operates within this LRS limit. If your total LRS remittances stay within Rs 10 lakh, no TCS is collected (except for overseas tour packages, which have no threshold).
TCS collected appears in Form 26AS within 10-15 days of deposit. Filing ITR for salaried individuals with foreign remittances requires reconciling Form 26AS TCS entries with actual remittance amounts. Any mismatch triggers a defective return notice.
The new Form 133 (replacing Form 27D) issued by the TCS collector serves as the documentary proof. Keep this along with forex purchase receipts and wire transfer confirmations. The TCS credit mechanism ensures no double taxation - but you must actively claim it in the ITR to get the benefit.
TCS Impact Comparison: Travellers vs Students vs Investors
| Parameter | Overseas Traveller | Student (Education) | Overseas Investor |
|---|---|---|---|
| New TCS Rate | Flat 2% (no threshold) | 2% above Rs 10L (0% if 80E loan) | 20% above Rs 10L (unchanged) |
| Old TCS Rate | 5% up to Rs 10L / 20% above | 5% above Rs 10L / 0.5% with loan | 20% above Rs 10L |
| Upfront Saving | Massive - up to 18% reduction | Moderate - 3% reduction | None |
| TCS Refundable? | Yes - via ITR | Yes - via ITR | Yes - via ITR |
| Cash-Flow Impact | Significant relief | Moderate relief | No change |
| ITR Form | ITR-2 or ITR-3 | ITR-2 or ITR-3 | ITR-2 or ITR-3 |
Key Takeaways
The Finance Act 2026 rationalised TCS rates under Section 394 of the Income Tax Act, 2025, effective from 01 April 2026. The most significant change is the flat 2% TCS on overseas tour packages, replacing the earlier 5%/20% tiered structure.
LRS remittances for education and medical purposes now attract 2% TCS (down from 5%) on amounts exceeding Rs 10 lakh per year. Education loans under Section 80E remain fully exempt from TCS - a critical benefit for loan-funded overseas education.
TCS on alcoholic liquor, scrap, and minerals has been rationalised to a uniform 2%. For liquor, this is an increase from 1%; for tendu leaves, a decrease from 5%. The government’s stated objective is to reduce multiplicity of TCS rates.
LRS remittances for purposes other than education and medical (overseas investments, foreign property, gifts) remain at 20% above Rs 10 lakh - no change from the previous regime.
TCS is not an additional tax. It is fully adjustable against your income tax liability when filing ITR. Any excess TCS is refundable. Taxpayers must verify Form 26AS and claim TCS credit in the tax credit schedule of their ITR form.
Need Help Planning International Remittances and TCS?
With TCS rates slashed on overseas travel and education, proper planning can maximise your cash-flow benefit. Whether you need to time remittances around the Rs 10 lakh threshold, claim Section 80E exemption for loan-funded education, or ensure TCS credit is correctly reflected in your ITR, expert guidance makes the difference.
Explore our tax planning for personalised advice on TCS optimisation, LRS compliance, and income tax return filing.
For queries, reach out at +91 945 945 6700 or WhatsApp us directly.
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