TCS on Foreign Remittances Slashed to 2% from April 1, 2026: What the New LRS Rates Mean for You
What Changed: TCS on Foreign Remittances Rationalized
The Finance Bill 2026, effective April 1, 2026, has rationalized Tax Collected at Source (TCS) rates on foreign remittances under the Liberalised Remittance Scheme (LRS). The changes, introduced through amendments to Section 394(1) of the Income Tax Act, 2025 (previously Section 206C(1G) of the Income Tax Act, 1961), bring a uniform 2% TCS rate across education, medical, and overseas tour package remittances. This replaces the earlier tiered structure that imposed rates ranging from 5% to 20%.
These changes directly impact families sending children abroad for education, individuals seeking overseas medical treatment, tour operators, and NRIs managing cross-border financial flows. If you or your clients make foreign remittances, here is exactly what has changed and what action to take.
New TCS Rate Chart: Before vs. After April 1, 2026
| Purpose of Remittance | Old TCS Rate (up to March 31, 2026) | New TCS Rate (from April 1, 2026) | Threshold |
|---|---|---|---|
| Education (funded by loan under Section 80E) | Nil | Nil | No threshold |
| Education (self-funded) | 5% above Rs 10 lakh | 2% above Rs 10 lakh | Rs 10 lakh per FY |
| Medical treatment abroad | 5% above Rs 10 lakh | 2% above Rs 10 lakh | Rs 10 lakh per FY |
| Overseas tour packages | 5% up to Rs 10 lakh; 20% above Rs 10 lakh | Flat 2% from first rupee | No threshold |
| Other LRS purposes (investments, gifts, property) | 20% above Rs 10 lakh | 20% above Rs 10 lakh | Rs 10 lakh per FY (unchanged) |
Key Highlights of the TCS Rationalization
1. Education Remittances: 60% Reduction in TCS Burden
For a parent remitting Rs 25 lakh for a child’s overseas education in FY 2026-27, the TCS calculation changes significantly:
- Old rate: 5% on Rs 15 lakh (amount above Rs 10 lakh) = Rs 75,000 TCS
- New rate: 2% on Rs 15 lakh = Rs 30,000 TCS
- Savings: Rs 45,000 in upfront cash flow
While TCS is adjustable against the final income tax liability, the upfront collection creates a cash flow burden for families already managing high foreign education costs. The reduction to 2% meaningfully eases this pressure.
2. Education Loan Exemption Continues
Remittances for education funded through loans from financial institutions covered under Section 80E remain completely exempt from TCS. This exemption is unchanged and continues under the new framework. Authorized dealers must verify the loan documentation before waiving TCS.
3. Overseas Tour Packages: Flat 2% Replaces Tiered Structure
The most significant simplification is in tour packages. Previously, a family booking a Rs 15 lakh international holiday package faced:
- Old structure: 5% on first Rs 10 lakh (Rs 50,000) + 20% on Rs 5 lakh above threshold (Rs 1,00,000) = Rs 1,50,000 TCS
- New structure: Flat 2% on Rs 15 lakh = Rs 30,000 TCS
- Savings: Rs 1,20,000
This is an 80% reduction in TCS for high-value tour packages. The elimination of the Rs 10 lakh threshold for the punitive 20% rate removes a major compliance pain point for tour operators and travelers alike.
4. Investment and Other Remittances: No Change
For remittances related to overseas investments (stocks, mutual funds, property), gifts to non-residents, and maintenance of close relatives abroad, the TCS rate remains at 20% for amounts exceeding Rs 10 lakh per financial year. The LRS annual limit of USD 250,000 per individual also remains unchanged.
Who Is Affected
For CA Professionals
- Update your TCS computation templates for FY 2026-27
- Advise clients on the new Section 394(1) rates under the Income Tax Act, 2025
- Review advance tax estimates for clients with regular foreign remittances; lower TCS means lower advance tax credits
- Tour operators need updated invoicing systems reflecting the new flat 2% rate
For Founders and Startups
- If your company sponsors employees for overseas training or conferences, the TCS on such remittances (classified as education) drops from 5% to 2%
- Startups sending founders or key personnel abroad for business development trips via tour packages benefit from the flat 2% rate
- Investment remittances for setting up overseas subsidiaries continue at 20% TCS above Rs 10 lakh; plan accordingly
For NRIs and Families
- Parents sending tuition and living expenses to children studying abroad should ensure their authorized dealer applies the new 2% rate from April 1, 2026
- Medical tourism patients benefit from the same 2% rate reduction
- Ensure your bank or forex dealer has updated their systems; if you see 5% being deducted after April 1, raise it immediately
Action Items: What to Do Before Your Next Remittance
- Verify with your bank or AD: Confirm that your authorized dealer has updated their TCS collection rates effective April 1, 2026
- Collect Form 27C: If you are eligible for lower or nil TCS (education loan cases), ensure Form 27C is submitted to your AD
- Update advance tax calculations: Lower TCS means lower tax credits available; adjust advance tax estimates for FY 2026-27
- Claim TCS credit in ITR: All TCS collected is reflected in Form 26AS (now Form 168 under Income Tax Rules, 2026). Claim full credit while filing your return
- Tour operators: Update your billing systems to reflect the flat 2% TCS on all packages from April 1, 2026. No more split calculation at Rs 10 lakh threshold
Legislative Reference
The TCS rate rationalization was introduced through the Finance Bill, 2026, amending the Seventh Schedule to the Income Tax Act, 2025. The corresponding section for TCS on foreign remittances under the new Act is Section 394(1), replacing the erstwhile Section 206C(1G) of the Income Tax Act, 1961. The LRS framework continues to be governed by the RBI’s Master Direction on LRS dated January 1, 2016 (as amended), with the annual remittance limit at USD 250,000 per resident individual per financial year.
Need help navigating cross-border tax compliance for your business or family? The advisory team at A S Banka Advisors Private Limited specializes in FEMA, LRS, and international tax planning for startups and professionals. Talk to an expert to review your remittance strategy for FY 2026-27.
Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. TCS rates and thresholds are subject to change through subsequent notifications. Please consult a qualified professional for advice specific to your situation. Information is current as of April 7, 2026.