The Union Budget 2026 has proposed significant rationalization of Tax Collected at Source (TCS) rates under the Income-tax Act, 1961. The objective is clear: reduce rate complexity, bring uniformity, and curb arbitrage, especially in sectors where high TCS was distorting genuine transactions.
These amendments are proposed under Clause 73 and will be effective from 1st April 2026 .
This Handout explains what has changed, what has increased, what has reduced, and who actually benefits or loses.
Comparative Table – Old vs New TCS Rates (Budget 2026)
| Nature of Transaction | Existing TCS Rate | New TCS Rate |
| Sale of alcoholic liquor for human consumption | 1% | 2% |
| Sale of tendu leaves | 5% | 2% |
| Sale of scrap | 1% | 2% |
| Sale of minerals (coal, lignite, iron ore) | 1% | 2% |
| LRS – Education / Medical (above ₹10 lakh) | 5% | 2% |
| LRS – Other purposes (above ₹10 lakh) | 20% | 20% (unchanged) |
| Overseas tour programme package (up to ₹10 lakh) | 5% | 2% |
| Overseas tour programme package (above ₹10 lakh) | 20% | 2% |
| Threshold for overseas tour package | ₹10 lakh | Removed |
Sector-Wise Impact Analysis
1. Alcohol, Scrap & Mineral Sectors – TCS Burden Increased
The TCS rate has been doubled from 1% to 2% for:
- Alcoholic liquor
- Scrap dealers
- Coal, lignite and iron ore suppliers
Reality check:
This is not a tax hike in substance (credit is available), but it blocks working capital and increases reconciliation pressure. Businesses with thin margins will feel the cash-flow pinch.
2. Tendu Leaves – Major Relief
TCS reduced from 5% to 2%.
This is a clear relief for forest-based and tribal-linked industries, where 5% was disproportionately high.
3. Liberalised Remittance Scheme (LRS) – Real Relief for Genuine Cases
Education & medical remittances above ₹10 lakh:
- Old: 5%
- New: 2%
This directly benefits:
- Students studying abroad
- Families facing overseas medical expenses
However, 20% TCS for other LRS purposes remains unchanged, signalling that the government is still discouraging discretionary foreign spending.
4. Overseas Tour Packages – Biggest Policy Shift
This is where Budget 2026 makes a decisive correction.
Earlier problem:
- 5% up to ₹10 lakh
- 20% beyond ₹10 lakh
- Threshold misuse
- Shift of bookings to foreign operators
Now:
- Flat 2% TCS
- No threshold
- Applies regardless of tour value
Result:
This removes the artificial incentive to split invoices and discourages business shifting outside India. It is a pro-domestic tour operator move.
Effective Date
All the above changes will apply from 1st April 2026 and NOT before.
Transactions up to 31 March 2026 will continue under old rates.
Source Reference
Budget 2026 – Rationalisation of TCS Rates, Clause 73
