TCS Changes from Budget 2026
The government has standardized TCS at 2% across multiple categories that previously had different rates. This simplification reduces confusion and makes compliance easier.
Complete TCS Rate Comparison: Before vs After
| # | Category | Old TCS Rate | New TCS Rate | Change |
| 1 | Sale of alcoholic liquor (for human consumption) | 1% | 2% | ↑ Increased |
| 2 | Sale of tendu leaves | 5% | 2% | ↓ Decreased |
| 3 | Sale of scrap | 1% | 2% | ↑ Increased |
| 4 | Sale of minerals (coal, lignite, iron ore) | 1% | 2% | ↑ Increased |
| 5 | Foreign remittance (education & medical) | Higher varied rates | 2% | ↓ Decreased |
| 6 | Overseas tour packages | 5% (≤₹10L) / 20% (>₹10L) | 2% (flat, no threshold) | ↓ Decreased |
| 7 | Foreign remittance (other purposes) | 20% | 20% | No change |
All changes effective from 1 April 2026.
What Stayed the Same
Any TCS category not mentioned above remains unchanged. If a rate was not modified in the Budget, the existing rate continues to apply under the new act.
TCS on Overseas Tour Packages — Major Relief
This is one of the most impactful changes for individuals who travel abroad.
How It Worked Before (Old Rules)
| Tour Package Value | TCS Rate |
| Up to ₹10 lakh | 5% |
| Above ₹10 lakh | 20% |
How It Works Now (From 1 April 2026)
| Tour Package Value | TCS Rate |
| Any amount — no threshold | Flat 2% |
What’s Included in “Overseas Tour Package”
The TCS applies on the total value of the package, which includes:
- ✈️ Travel expenses (flights, transport)
- 🏨 Hotel accommodation and stay
- 🍽️ Boarding and lodging
- 🎫 Any similar or related expenditure included in the package
Practical Impact
| Scenario | Old TCS | New TCS | You Save |
| Family trip to Europe: ₹8,00,000 | ₹40,000 (5%) | ₹16,000 (2%) | ₹24,000 |
| Luxury trip: ₹15,00,000 | ₹2,50,000 (₹50K + ₹1L at 20%) | ₹30,000 (2%) | ₹2,20,000 |
| Honeymoon package: ₹5,00,000 | ₹25,000 (5%) | ₹10,000 (2%) | ₹15,000 |
NOTE
TCS is not an additional cost — it is a tax collected in advance that you can claim as credit when filing your ITR. However, the lower rate means less cash is blocked upfront, improving your liquidity.
TCS on Foreign Remittance — Education & Medical Relief
Sending Money Abroad for Education or Medical Treatment
| Purpose | Old TCS Rate | New TCS Rate |
| Education (tuition, living expenses) | Varied (up to 5%) | 2% |
| Medical treatment abroad | Varied (up to 5%) | 2% |
| Any other purpose | 20% | 20% (no change) |
Who Benefits?
- 🎓 Parents sending money for children studying abroad
- 🏥 Patients seeking medical treatment in foreign countries
- 📚 Students self-funding education abroad
Important Distinction
| Remittance Purpose | TCS Rate (From 1 April 2026) |
| Education fees / living expenses abroad | 2% |
| Medical treatment abroad | 2% |
| Investment in foreign assets | 20% |
| Gift to NRI family member | 20% |
| Buying foreign property | 20% |
| Any other remittance | 20% |
TIP
If you’re sending money abroad for your child’s education, the TCS burden has dropped significantly. On a ₹20 lakh annual tuition remittance, you now pay only ₹40,000 TCS instead of up to ₹1,00,000 — freeing up ₹60,000 in cash flow.
TDS on Property Purchase from NRI — TAN Requirement Removed
This change brings massive relief for ordinary home buyers purchasing property from an NRI seller.
The Problem (Before This Change)
| Scenario | Seller | Buyer | TDS Process |
| Resident buys from Resident | Indian resident | Resident Individual/HUF | PAN-based challan ✅ (no TAN needed) |
| Resident buys from NRI | NRI | Resident Individual/HUF | TAN mandatory ❌ (complex process) |
When buying property from an NRI, the resident buyer had to:
- Apply for a TAN (Tax Deduction Account Number)
- Deduct TDS at higher rates (20-30% depending on capital gains)
- File quarterly TDS returns
- Issue TDS certificate in Form 16A
This was overly complex for an individual making a one-time property purchase.
The Solution (From 1 October 2026)
| What Changed | Details |
| TAN requirement | Removed for resident individuals and HUFs buying property from NRIs |
| New process | PAN-based challan — same simple process as buying from a resident |
| Effective date | 1 October 2026 |
Who Benefits?
This relief is specifically for:
- ✅ Resident Individuals buying property from NRIs
- ✅ HUFs (Hindu Undivided Families) buying property from NRIs
Who Does NOT Get This Relief?
- ❌ Companies buying property from NRIs — TAN still required
- ❌ Partnership firms buying property from NRIs — TAN still required
- ❌ Any entity other than individual/HUF — TAN-based process continues
Timeline
| Date Range | Process for Individual/HUF Buying from NRI |
| Until 30 September 2026 | TAN-based TDS (old complex process) |
| From 1 October 2026 | PAN-based challan (simplified, same as resident-to-resident) |
IMPORTANT
If you’re planning to buy property from an NRI, waiting until after 1 October 2026 will save you the hassle of applying for a TAN. The simplified PAN-based process will handle TDS deduction, return filing, and certificate generation — all in one step.
Existing Rule: Property TDS Basics
For reference, the standard property TDS rule remains:
| Parameter | Rule |
| When does TDS apply? | Property value exceeds ₹50 lakh |
| TDS rate (from resident seller) | 1% of property value |
| TDS rate (from NRI seller) | 20-30% on capital gains (depending on type) |
| Who deducts? | The buyer |
| Who gets the credit? | The seller (can claim in their ITR) |
Manpower Supply TDS — Ambiguity Resolved
The Old Confusion
One of the longest-running TDS debates has been settled. When a business hires manpower through a staffing agency, which section applies?
| Section | Nature | TDS Rate |
| Section 194C (old act) | Payment for “work” / contract | 1% (Individual/HUF) or 2% (others) |
| Section 194J (old act) | Professional / technical services | 10% |
Many businesses were confused about whether manpower supply is “work” (194C) or “professional services” (194J). This led to:
- Inconsistent TDS deduction across companies
- Litigation and disputes with the department
- Penalty for short deduction of TDS
The Clarification (Budget 2026)
Manpower supply is now explicitly included in the definition of “work” under Section 194C (old act) / Section 393 (new act).
| Aspect | Clarification |
| Category | Manpower supply = “Work” |
| Old Act Section | 194C |
| New Act Section | 393 (Table, relevant serial number) |
| TDS Rate | 1% (if payee is Individual/HUF) or 2% (if payee is any other person) |
| Effective from | 1 April 2026 |
Practical Impact
| Payee Type | Old Ambiguity | Settled Rate |
| Staffing company (Pvt Ltd) | 194C (2%) or 194J (10%)? | 2% under 194C / Sec 393 |
| Individual manpower contractor | 194C (1%) or 194J (10%)? | 1% under 194C / Sec 393 |
| HUF providing manpower | 194C (1%) or 194J (10%)? | 1% under 194C / Sec 393 |
NOTE
This change reduces the TDS burden for businesses using staffing agencies. Instead of deducting 10% under 194J, you now deduct only 1-2% under the work category. Update your vendor TDS categories in your accounting software immediately.
New Income Tax Act 2025: TDS/TCS Section Mapping
From 1 April 2026, you need to reference new section numbers. Here is the key mapping:
| Purpose | Old Act (1961) Section | New Act (2025) Section |
| TDS on Salary | 192 | New section (refer Act) |
| TDS other than Salary | 194C, 194J, 194A, etc. | Section 393 (with tables & serial numbers) |
| TCS | 206C | New section (refer Act) |
| TDS on NRI payments | 195 | New section (refer Act) |
| Manpower supply | 194C (clarified) | Section 393 |
| Property TDS (resident seller) | 194-IA | New section under Sec 393 framework |
| Property TDS (NRI seller) | 195 | Simplified PAN-based (from 1 Oct 2026) |
How Section 393 Works
The new act consolidates most TDS provisions into Section 393, which uses a table-based structure:
- Each category of payment has a serial number in the table
- The table specifies the category of person (Individual, HUF, Company, etc.)
- The applicable TDS rate is mentioned against each serial number
- This replaces the old system of separate sections (194A, 194B, 194C, 194H, 194I, 194J, etc.)
TIP
Action item for businesses: Download the new Income Tax Act 2025 from incometaxindia.gov.in and familiarize yourself with the Section 393 table structure. Map your existing vendor categories to the new serial numbers before 1 April 2026.
Action Checklist: What You Need to Do
For Businesses (Immediate)
- Update accounting/ERP software with new TDS section numbers (Sec 393)
- Revise TCS rates for alcohol, tendu, scrap, minerals, foreign remittance, tour packages
- Reclassify manpower supply vendors from 194J to 194C/Sec 393
- Train accounts team on new Income Tax Act 2025 section references
- Update TDS return filing templates for Q1 FY 2026-27
For Individuals
- If buying property from NRI — wait until 1 October 2026 for PAN-based process (if possible)
- If sending money abroad for education/medical — benefit from 2% TCS (lower upfront cost)
- If booking overseas tour packages — benefit from flat 2% TCS (no threshold)
- Remember: TCS paid can be claimed as credit in your ITR
For Travel Agencies & Tour Operators
- Update invoicing systems to collect 2% TCS on all overseas packages
- Remove the ₹10 lakh threshold logic — flat 2% applies on all values
- Communicate the TCS reduction to customers as a cost benefit
Frequently Asked Questions (FAQs)
When do the new TDS and TCS rates take effect?
All TCS rate changes and most TDS changes take effect from 1 April 2026. The only exception is TDS on property purchased from NRIs (TAN removal), which takes effect from 1 October 2026.
What is the new TCS rate on overseas tour packages in 2026?
The TCS on overseas tour packages has been simplified to a flat 2% on the total package value. The old slab system (5% up to ₹10 lakh, 20% above ₹10 lakh) has been completely removed. This applies from 1 April 2026.
Do I still need TAN to buy property from an NRI?
Until 30 September 2026, yes — TAN is still required. From 1 October 2026, resident individuals and HUFs can use the simplified PAN-based challan to pay TDS on property purchased from NRIs, eliminating the TAN requirement. Companies and firms still need TAN.
Which TDS section applies to manpower supply from April 2026?
Manpower supply has been clarified as “work” and falls under Section 194C (old act) / Section 393 (new act). The TDS rate is 1% if the payee is an individual or HUF, and 2% for all other persons. The old ambiguity between 194C and 194J is resolved.
What is Section 393 of the new Income Tax Act?
Section 393 is the new consolidated section that covers TDS on payments other than salary. It replaces multiple old sections (194A, 194C, 194H, 194I, 194J, etc.) with a single table-based structure where each payment category has a serial number and corresponding TDS rate.
Has TCS on foreign remittance for education changed?
Yes. TCS on money sent abroad for education and medical treatment has been reduced to 2% from 1 April 2026. Previously, the rate was higher (up to 5%). For remittances for other purposes, the rate remains at 20%.
Can I claim TCS as credit in my income tax return?
Yes. TCS collected on your purchases or remittances is not a final tax. It is an advance tax collection that you can claim as a credit against your total tax liability when you file your ITR. If the TCS exceeds your tax liability, you will receive a refund.
What if my travel agent charges old TCS rates after April 2026?
If your travel agent collects TCS at the old rate (5% or 20%) instead of the new 2% rate, the excess TCS will reflect in your Form 26AS and AIS. You can claim the full credit in your ITR and get a refund. However, you should ask the agent to correct the rate.
Do old Income Tax Act section numbers still work after 1 April 2026?
No. From 1 April 2026, you must use the new Income Tax Act 2025 section numbers for all TDS/TCS deductions, challans, and returns. Using old section numbers may cause processing errors and penalties for incorrect compliance.
Is TCS on sale of scrap increased or decreased?
The TCS on sale of scrap has increased from 1% to 2% effective 1 April 2026. Similarly, TCS on sale of minerals (coal, lignite, iron ore) has also increased from 1% to 2%.
Complete TDS/TCS Changes Summary Table
| # | Change | Old Rule | New Rule | Effective Date |
| 1 | TCS — Alcoholic liquor | 1% | 2% | 1 Apr 2026 |
| 2 | TCS — Tendu leaves | 5% | 2% | 1 Apr 2026 |
| 3 | TCS — Scrap | 1% | 2% | 1 Apr 2026 |
| 4 | TCS — Minerals (coal, lignite, iron) | 1% | 2% | 1 Apr 2026 |
| 5 | TCS — Foreign remittance (education/medical) | Up to 5% | 2% | 1 Apr 2026 |
| 6 | TCS — Overseas tour packages | 5% (≤₹10L) / 20% (>₹10L) | Flat 2% | 1 Apr 2026 |
| 7 | TCS — Foreign remittance (other) | 20% | 20% (unchanged) | — |
| 8 | TDS — Property from NRI (individual/HUF buyer) | TAN required | PAN-based (no TAN) | 1 Oct 2026 |
| 9 | TDS — Manpower supply | Ambiguous (194C vs 194J) | 194C / Sec 393 (1-2%) | 1 Apr 2026 |
| 10 | TDS/TCS — Section numbers | Old Act sections | New Act sections | 1 Apr 2026 |
This guide covers all TDS and TCS changes announced in Budget 2026 under the new Income Tax Act, 2025. All rate changes and provisions are effective from the dates specified by the Finance Bill and CBDT notifications.
Key Takeaways
| Change | What Happened | Effective Date |
| TCS rates | Standardized to 2% across 6 major categories | 1 April 2026 |
| Overseas tour TCS | Old 5%/20% slab system → flat 2% (no threshold) | 1 April 2026 |
| Foreign remittance (education/medical) | TCS reduced to 2% | 1 April 2026 |
| Property from NRI | TAN no longer required → PAN-based challan | 1 October 2026 |
| Manpower supply TDS | Clarified under 194C / Sec 393 (work definition) | 1 April 2026 |
| All TDS/TCS sections | New section numbers under Income Tax Act 2025 | 1 April 2026 |
Critical Timeline: Old Act vs New Act
Before diving into the changes, understand which law applies when:
| Period | Act That Applies | TDS/TCS Sections |
| Up to 31 March 2026 | Old Income Tax Act, 1961 | Old section numbers (194C, 194J, 206C, etc.) |
| From 1 April 2026 | New Income Tax Act, 2025 | New section numbers (Sec 393, etc.) |
IMPORTANT
Starting 1 April 2026, you must use the new Income Tax Act’s section numbers for all TDS and TCS compliance. The old section numbers (194C, 194J, 206C, etc.) will no longer apply. Update your accounting software, TDS return templates, and internal processes immediately.
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