Big relief for students, patients as Budget 2026 slashes TCS rate from 5 per cent to 2 per cent

In a major relief for students and families, Finance Minister Nirmala Sitharaman on Sunday announced a reduction in the Tax Collected at Source (TCS) rate for education and medical purposes from 5 per cent to 2 per cent in the Union Budget 2026.

Presenting her ninth consecutive budget, Sitharaman said the move aims to ease the financial burden on taxpayers, particularly those making overseas remittances for education and medical treatment. The reduced TCS rate is expected to improve cash flow and make such essential expenses more affordable.

"I propose to reduce TCS rate for pursuing education and for medical purposes under the Liberalised Remittance Scheme (LRS) from 5 per cent to 2 per cent," she said.

The announcement comes as part of the government’s broader effort to simplify tax compliance and provide targeted relief to middle-class taxpayers.

The TCS rate on remittance under the LRS of an amount or aggregate of the amounts exceeding Rs 10 lakh has been proposed at 2 per cent for purposes of education or medical treatment from the current 5 per cent.

Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.

However, TCS rate for purposes other than education or medical treatment will continue to attract TCS of 20 per cent.

Sitharaman also proposed to reduce TCS rate on the sale of overseas tour program package from the current 5 per cent and 20 per cent to 2 per cent without any stipulation of amount.

“The Union Budget announcements reflect the Govt’s effort to address compliance timelines and create a more simplified tax framework. The Finance Minister proposed multiple measures to ease compliance for taxpayers and to waive off the procedural roadblocks. These measures include extending the period of filing revised returns, safe harbour regulations for IT Industry, extension of tax holidays, Rationalisation of TDS and TCS provisions, filing of declaration for no deduction of tax at source to depository and also decrimnalising some prosecution and penal provisions," said Zubin Billimoria – President, BCAS (Bombay Chartered Accountants Society).

The current TCS is 5 per cent on sale of 'overseas tour programme package' including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure up to Rs 10 lakh, and 20 per cent above 10 lakh.

The current TCS on sale of minerals (coal or lignite or iron ore); sale of alcoholic liquor for human consumption; and sale of scrap, is one per cent.