TCS under Liberalised Remittance Scheme to TDS changes in Budget 2026: All you need to know

The Union Budget 2026 introduced many changes in Tax Collected at Source (TCS) and Tax Deducted at Source (TDS) under the Finance Bill, 2026, including the increase of TCS on the sale of alcohol for human consumption to 2% from 1% before. 

FM Sitharaman also proposed reducing the TCS rate on education and medical purposes under the Liberalised Remittance Scheme (LRS) to 2% from 5% before. The TCS rates are being rationalised to make TCS uniform, the tax department said in its Budget 2026 FAQs. 

“It is proposed to reduce the multiplicity of TCS rates. Also, certain TCS rates are rationalised to address the cash flow issues on this account,” according to the Budget speech. 

TCS changes in Budget 2026

TCS on remittances

Currently, if you send money abroad, a TCS of 5% is collected for education purposes and medical treatment, while a TCS of 20% is collected for reasons other than education and medical. After the changes announced in Budget 2026 are implemented, remittances for education and medical purposes will only attract 2% TCS. 

However, there is no change in the TCS rate for purposes other than education or medical treatment, the tax department said in the Budget FAQs. 

“The rationalization of rates has been done to provide more liquidity to the remitter and minimise locking of funds. In such cases, the rate has been rationalised to only keep track of the transaction,” the tax department said. 

Note that there is no change in the threshold limit for TCS under the LRS, which is ₹10 lakh. These changes will come into effect from April 1, 2026.

TDS changes

Here are the TDS changes proposed in the Budget 2026:

1. There will be no TDS on interest awarded by Motor Accident Claims Tribunals to victims of motor vehicle accidents and their families. Currently, if the interest on compensation is over ₹50,000, TDS is applicable. Under the new rules, TDS won’t be applicable on the interest on the compensation received.

2. Supply of manpower is now included within “work” under section 402(47) to avoid ambiguity. With this, the TDS on these services will be reduced to either 1% or 2%. “Supply of manpower services is proposed to be specifically brought within the ambit of payment to contractors for the purpose of TDS to avoid ambiguity. Thus, TDS on these services will be at the rate of either 1% or 2% only,” as per the Budget speech.

3. A Tax Deduction and Collection Account Number (TAN) will no longer be required for deducting TDS where the seller of the immovable property is a non-resident under Section 397 of the Income Tax Act, 2025. “In such cases, the buyer will now deduct tax using his PAN and shall report the deduction quoting the PAN of the seller in the challan-cum-statement that is filed with the department. Therefore, the process of tax deduction and reporting shall now be similar irrespective of whether the seller is a resident or a non-resident,” as per the Budget FAQs of the tax department.

4. If a non-life insurance company was denied a deduction for an expense because TDS was not deducted or not paid as required under section 35(b)(i) or 35(b)(ii), the expense will now not be permanently disallowed. If the company deducts and pays the TDS in accordance with the law, it can claim back the expense in a later year.

Is there a punishment for the non-payment of TCS/TCS?